Iraq oil deal auction a 'success', sees huge output

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Iraq, emerging from the shadow of war, expects to boost its oil output to rival the level of top producer Saudi Arabia after awarding some of its most attractive oilfields to global oil companies this week.

By the end on Saturday of a two-day bidding round for 10 oil contracts -- the second auction since the 2003 US invasion -- Iraq had received pledges from oil firms to boost its output by 4.765 million barrels per day, almost double its current output.

If all deals from a first auction in June, the second this weekend and others being negotiated are added to national production, Iraq will have a capacity of 12 million barrels per day, overtaking Russia and challenging Saudi Arabia's 12.5 million bpd, Oil Minister Hussain al-Shahristani said.

"This second round marked a major success for the Iraqi government and the Oil Ministry," government spokesman Ali al-Dabbagh told Reuters.

Some 30 international oil companies braved the threat of violence and attacks to come to Iraq, putting aside security concerns just days after car bombs killed 112 people in Baghdad.

Oil majors from the United States appeared conspicuously uninterested in the fields on offer in the second round, confounding expectations that they might end up with the lion's share of Iraq's oil sector as a result of the US-led war.

Security may still be an issue. The series of car bombs on Tuesday was the third major assault on government buildings in Baghdad in four months and a bloody reminder of the fragile security as Iraq heads into a general election in March.

Thousands of Iraqi soldiers and police were deployed in the streets of the capital to protect the auction and army helicopters buzzed overhead. Oil executives travelled around town in convoys of armoured SUVs with armed guards.

Fierce competition
Amid fierce competition, a group led by Russian energy giant Lukoil won a deal to develop the West Qurna Phase Two oilfield, which with 12.9 billion barrels of reserves is one of the world's largest untapped "supergiant" fields. Supergiants are fields of 5 billion barrels or more.

On the first day of the auction on Friday, the 12.6 billion barrel supergiant Majnoon field went to a partnership of Royal Dutch Shell and Malaysia's Petronas .

The Russian company's win of West Qurna is made sweeter by the fact it had lobbied unsuccessfully since the 2003 U.S. invasion to revive a Saddam Hussein-era contract for the field.

"The terrorists tried to send a message to the companies through the bombings ... that Iraq is unstable and investment will be overshadowed by risks," Shahristani told state television on Friday night.

"But this message was not delivered and never deceived them. They came and submitted competitive offers that surprised the global oil industry."

Only two of the five fields on offer on Friday were initially awarded as oil firms steered clear of more dangerous or troublesome areas, including the supergiant East Baghdad oilfield that lies in part under Baghdad's Sadr City slum and fields in the north where violence is still rife.

The Qayara field in the north near the violent city of Mosul, which was not awarded on Friday, was won by Angolan state-oil firm Sonangol on Saturday after the company changed its mind about accepting the government's proposed USD5 per barrel fee. Sonangol had wanted more than twice that.