The Iraqi Oil Ministry has awarded an Exxon Mobil Corp. consortium the right to develop one of the world's largest oil fields, marking the first time an American-led group has been allowed into the Iraqi oil patch since the U.S.-led invasion began.
The ministry and Exxon on Thursday said they signed an initial deal and expected to soon sign a final contract that would give Exxon and Royal Dutch Shell PLC the right to develop the giant West Qurna-1 oil field in southern Iraq. The Exxon-Shell team beat out two other consortia, one led by Russian giant Lukoil and including ConocoPhillips, and the other led by China National Petroleum Corp.
The pact comes as the world's largest publicly traded oil companies search for new places to explore. And it caps a week of deal-making by Iraqi officials, who have struggled since the U.S.-led invasion in 2003 to attract foreign capital and know-how to their dilapidated fields.
Earlier this week, Iraq signed a final deal with a BP PLC and CNPC consortium for another giant field and initialed another preliminary pact with a consortium led by Italy's Eni SpA that includes Occidental Petroleum Corp. as a junior partner.
The agreements offer a measured vote of confidence in Iraq by foreign investors, despite continued political instability and still-harrowing violence. Overall, violence has subsided significantly from the worst of the country's sectarian strife in 2006 and 2007. But attacks remaincommon, including a brazen attack on government buildings late last month that killed at least 155.
The deal-making also caps a six-year struggle by some Iraqi officials to invite foreign companies to help them develop the fields. Shortly after the start of the U.S. occupation in 2003, several Iraqi politicians and oil officials began wooing foreign concerns. Before the invasion, the country was pumping some 2.5 million barrels a day, far below its perceived potential.
But those efforts faltered amid political opposition. Iraq's vast oil wealth is a source of national pride, and foreign involvement is viewed suspiciously. Amid an insurgency, sectarian fighting and a lack of investment, output plunged, only recently returning near to prewar levels.
U.S. oil companies, in particular, moved carefully. Few executives expressed much public interest in Iraq amid widespread accusations that the U.S. went to war for oil. The Bush administration denied its invasion had anything to do with petroleum.
Amid popular opposition to foreign oil companies, Iraq's parliament failed to pass a petroleum law. In the vacuum, Iraqi Oil Minister Hussain al-Shahristani reached limited contracts that he said didn't require parliamentary approval. In June, he pushed through a historic oil-field auction round to award those contracts.
Structured as 20-year service contracts, the agreements call for per-barrel payments to the oil companies for any extra production they can squeeze out of already-pumping fields. Exxon and most other companies walked away from the deals during the summer auction, complaining the per-barrel fees offered by Iraq were too low.
The BP/CNPC consortium was the only team that won a contract in the round. But Iraqi officials continued talking to companies, including Exxon.
Exxon agreed Thursday to accept $1.90 a barrel for its work, down from its original proposed payment of $4 a barrel. The deals don't allow for companies to book new reserves or production, like other, more typical big development deals. But they offer access to Iraqi oil executives and experience working in Iraq's fields, both crucial to future bids if the country opens up more.
The Exxon team said it would boost production at the field to 2.3 million barrels a day, up from just 260,000 barrels a day currently. The field has estimated reserves of 8.7 billion barrels. The team offered the highest daily oil production, the Oil Ministry said.
The decision by Exxon to accept the terms comes as it struggles to gain access to the kind of big, complex oil fields on which the company has been built. It has failed to get a large foothold in Brazil's recent offshore finds, and a deal to buy a stake in an oil field off the coast of Ghana has also been stymied by politics and intense competition.
Petroleum-rich countries are driving increasingly hard bargains with oil companies, analysts say. "The terms are tough, but the terms are tough everywhere," said Robinson West, chairman of the oil-consulting firm PFC Energy. "It's a challenge for the entire industry, not just Exxon."
The Exxon deal must be approved by the Iraqi cabinet before a final agreement can be signed, Oil Ministry spokesman Assem Jihad said.
"We have agreed with the Ministry of Oil on the principles of the rehabilitation and development of the West Qurna field and look forward to completing the contract," Exxon spokesman Patrick McGinn said in a statement.
This isn't the first time Exxon has accepted a deal to let it drill in an oil-rich region but offered only a fixed payment. It has agreed to similar terms in recent years in Libya and Abu Dhabi, industry officials said.
The issue of access to the world's remaining oil has become acute lately. Last month, ConocoPhillips Chairman James J. Mulva said "access is just not what it used to be."
Iraqi officials hope the contracts for the three fields this week will help bring Iraq's oil production to seven million barrels a day in six years, from about 2.5 million barrels a day.