US major Exxon Mobil has won a contract to develop West Qurna 1 field, the oil ministry said on Thursday, as the foreign role in Iraq's oil industry widens with China leading the way.
"Today we will sign with the consortium of Exxon Mobil and Shell a preliminary accord for the development of West Qurna 1" in southern Iraq, spokesman Assem Jihad said.
Rival consortiums led by Exxon and by Russia's Lukoil had submitted bids which both met Iraq's conditions for the field, Jihad said last week.
The winning group, in which Exxon holds an 80-percent share and Anglo-Dutch firm Shell the balance, has proposed to boost the field's production to 2.1 million barrels per day (bpd).
West Qurna 1 currently produces about 279,000 bpd and has reserves of around 8.5 billion barrels, according to oil ministry figures.
Ahead of a second round of international bidding for contracts in mid-December, Exxon Mobil and Shell have decided to accept Baghdad's offer of 1.90 dollars per additional barrel extracted from West Qurna 1.
The bidding process has been marked by an aggressive strategy adopted by oil firms from China, for which securing long-term energy supplies for its massive economy is a national security issue.
On Tuesday, Baghdad formally signed a deal with Britain's BP and China National Petroleum Corp (CNPC) to almost triple production at the giant Rumaila oilfield, also in the south, in a 50-billion-dollar investment.
With China leading the way, the 20-year contract is expected to boost output at Rumaila from the current one million bpd to around 2.8 million bpd within the first six years.
"What is striking is the strong showing of Chinese companies in a sector which up until its total nationalisation in 1975 had been the preserve of the British," said Ruba Husari, founder of the Iraq Oil Forum website.
CNPC is already operating in the centre of the country, having sealed the first energy deal by a foreign company since the US-led invasion that ousted Saddam Hussein in 2003.
Underlining the Asian economic powerhouse's role, four Chinese firms -- CNPC, CNOOC, SINOCHEM and SINOPEC -- were in the consortiums selected for the first round of bidding.
"These companies don't have the same constraints as their Western rivals, which have to make profits that satisfy their shareholders," said Husari. "Chinese public companies operate within the framework of state interests."
They also accept a lower level of return "if that guarantees Chinese dealers and 'made in China' products a share of the Iraqi market," she explained.
Six oil and two gas fields were up for grabs in late June but only the contract for Rumaila was sealed. In return for their investment, BP and CNPC agreed to payment of two dollars per additional barrel produced at Rumaila.
Initially, foreign firms snubbed Iraq in what had been the first such opportunity for outside investment in the sector in almost 40 years, amid concerns over the perceived low level of return on huge investments.
The service contracts offered by Baghdad are based on companies accepting a fixed fee per barrel of oil extracted rather than an equity stake.
Iraq has the world's third-largest proven oil reserves of 115 billion barrels, behind only Saudi Arabia and Iran. Oil sales, especially exports of 2.4 million barrels a day, provide 85 percent of government revenues.
However, there has been little exploration or development of fields in the past three decades because of wars and an international embargo imposed on Iraq in 1990 following Saddam's invasion of Kuwait.
Investment in Iraq's aging energy infrastructure has been hampered by delays to a key hydrocarbons law despite the urgent need for funding of the country's post-war reconstruction.
Iraq aims to boost output to seven million bpd within six years by developing the Zubair, Rumaila, West Qurna 1, Kirkuk and Maysan fields. Longer term, Shahristani's sights are set on between 10 and 12 million bpd.
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