Iraq Offers Foreign Oil Firms Profit Share Deals

Companies will have to pay signature bonuses of at least $10 million and commit to strict work programs to secure deals.

Iraq's oil minister presented foreign oil companies with details of the contracts under which they can invest in eight big oil and gas fields and said winners would receive a share of the extra revenue they generate.

Hussain al-Shahristani told a press conference after day-long talks between 35 pre-qualified companies and Iraqi officials on Monday that the companies were "very keen" to bid for the contracts.

Iraq's state oil companies will retain a majority stake in the companies that will be established to operate the fields, while foreign companies can own up to 49 percent, individually or as part of consortia.

However, rather than receive a flat fee for pumping the oil, as many had expected under the so-called "service contracts," the companies have been invited to bid for a share of the extra revenue they generate when certain hurdles have been overcome.

Lower bids will stand a better chance of winning.

In practice, this will allow the companies to share in profits generated by the fields rather than force them to operate like service companies, something they do not generally like.

Shahristani said outside help was needed to lift output to the level that is needed to finance Iraq's reconstruction.

"Current production is by no way meeting our needs for the redevelopment of the country," he said.

The contracts are controversial in a country that, like many neighbours, has long been suspicious of foreign investment in its oil sector. They will run for 20 years and companies will be receive their income in cash or in oil.

Shahristani said he hoped production at the fields on offer would rise by 1.5 million barrels per day, compared to Iraq's total current output of around 2.5 million bpd.

The list of prequalified companies includes most of the western oil majors such as Exxon Mobil and Royal Dutch Shell Plc and state-owned oil companies from China and India.

Most executives exiting the presentation said it was too early to tell whether they would bid or not, as they would need to examine the terms on offer and some of the data, but most said it had been a positive presentation.

Companies will have to pay signature bonuses of at least $10 million and commit to strict work programs to secure deals.

Greg Muttitt, co-director of Platform, a non-governmental, UK-based environmental and human rights group, said he hoped the government would fulfill its promise to publish the full form of the contracts soon to ensure a transparent licensing process.

Muttitt said there was a danger that Iraq would get a bad deal because companies would submit bids that include high costs related to security, but costs could decline over time.

"In five or ten years time the revenues will still be shared in a way that reflects the current security climate," he told Reuters at the sidelines of the roadshow.