Companies Ease Demands on Iraqi Oil Field Rights

BAGHDAD (THE WALL STREET JOURNAL via Dow Jones), Oct. 14, 2009

Several oil companies that rejected tough terms in the country's first auction for oil-field rights this summer have dropped their demands for higher payouts, said Oil Minister Hussein al-Shahristani at a news conference Tuesday.

The reversal has revitalized talks over a handful of oil-development deals between Iraq and international oil companies. The June auction was seen as a disappointment because just one international consortium agreed to the tough terms set out by the ministry.

Mr. Shahristani said that companies such as Exxon Mobil Corp., Russia's OAO Lukoil and Eni SpA of Italy have withdrawn their earlier resistance to what the industry saw as unreasonably low payments for helping Iraq develop some of its existing oil fields.

Translating negotiations into actual deals is critical for Iraq, which relies on oil sales for 90% of government revenue.

International oil companies have been clamoring to get a foot into Iraq, where developing costs are low. But they balked at the low fees Iraq proposed to pay them during the June 30 auctions.

Mr. Shahristani said that the ministry has been continuing discussions with some of the companies, and that Baghdad is now closing in on deals after some companies relented on terms. In the proposed contracts, the oil ministry would pay companies for developing new production at some of Iraq's large, existing fields.

Exxon and Lukoil had been eyeing Iraq's large West Qurna oil field in the June bidding. Exxon had initially proposed a payment of $4-a-barrel for new production. Lukoil, bidding in partnership with ConocoPhillips, had offered $6.49 a barrel.

Exxon and the Lukoil-Conoco consortium have now accepted the $1.90-a-barrel fee that Iraq initially proposed for that field, Mr. Shahristani told reporters.

A Lukoil spokesman confirmed the agreement on fees. An Exxon spokesman declined to comment on its negotiations, saying only "we continue to assess business opportunities in Iraq."

Mr. Shahristani also said a consortium led by Eni has accepted the Iraqi oil ministry's proposed $2-a-barrel payment for the Zubair field. Eni had originally proposed a $4.80-a-barrel fee for the field.

An Eni spokeswoman declined to comment on discussions over the field in detail, but she said the company accepted the $2-a-barrel fee because some other conditions had changed, making the lower price more acceptable. The original 20-year contract, which includes Eni's consortium partners Occidental Petroleum Corp. and Korea Gas Corp., could be extended to 25 years, according to an Eni statement.

Mr. Shahristani said terms of the deals offered to international oil companies hadn't changed.

Both the Zubair and West Qurna fields were initially part of the historic June 30 auction, Iraq's first opening to foreign oil firms in some 30 years. In that auction, a consortium made up of BP PLC and China National Petroleum Co. won the giant Rumaila field after cutting its proposed fees by half, to just $2 per each additional barrel of production beyond current levels.

Iraq will host a second bid round for 10 unexplored oil and natural-gas fields in the first half of December, Mr. Shahristani said.  

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