Iraq signed a final deal Tuesday with U.K. oil major BP PLC (BP.LN) and China National Petroleum Corp. to develop Rumaila, its largest producing oil field, said Iraqi Oil Minister Hussein al-Shahristani.
The 20-year service contract for Rumaila, the only deal agreed at the country's first postwar licensing auction in June, is part of the Iraqi Oil Ministry's strategy to boost production and rake in more desperately needed cash to revive the country's war-hit infrastructure.
BP and CNPC have agreed to receive a fixed fee of $2 for each additional barrel of oil produced at Rumaila. They are expected to almost triple production at the field to 2.85 million barrels a day, from current production of 1.05 million barrels a day.
Shahristani said Tuesday that BP and CNPC would invest up to $50 billion to develop Rumaila. However, BP Chief Executive Tony Hayward, who was present at the signing, told reporters the two companies are expected to invest up to $15 billion.
"We were able to attract some of the world's largest oil companies to invest in Iraq," Shahristani told a news conference in Baghdad, which he held along with BP's Hayward and CNPC's President Jiang Jiemin.
"We are pleased to have this opportunity to work with the people of Iraq to develop one of the world's great oil fields," said Hayward.
Under the deal, BP will hold a 38% stake in the venture, while CNPC will possess 37% and Iraq's South Oil Co. will hold the remaining 25%.
BP and CNPC must pay out $500 million in cash to the Iraqi government 30 days after the deal takes effect via a recoverable soft loan. Corporate income tax, to be paid yearly, is set at 35% and applies to the $2/barrel remuneration fee.
Rumaila, which accounts for 40% of Iraq's current 2.45-million-barrels-a-day output and has proven reserves of up to 20 billion barrels, was brought onstream in 1953.
Jiang Jiermin, president of CNPC, said they could achieve the production plateau of 2.85 million barrels a day ahead of schedule. The pair are contracted to reach that level after seven years of development.
Clinching the contract is considered a triumph for Shahristani who has been criticized by some Iraqi lawmakers for not doing enough to boost production from the world's third largest oil reserves.
Iraq originally offered eight oil and gas fields to foreign energy companies at an auction in June, but only BP and CNPC reached agreement with Baghdad at the time.
On Monday, Italy's Eni SpA (E) signed an initial agreement with the Iraqi government to develop the Zubair oil field in southern Iraq. The field was also which was auctioned in June but no contract was awarded. A final document will be signed after the approval of the Iraqi council of ministers.
Iraq also hopes to award West Qurna-1 in the next few days to one of three international consortia that accepted Iraq's terms in June.
Shahristani said development of these three fields would bring Iraq’s oil production to 6 million barrels a day in six years.
Iraq is also planning to auction 10 groups of oil and gas field Dec. 11 and 12. Shahristani confirmed the auction would be held on schedule.