Shell wins rights to South Iraq oil field

A consortium led by Anglo-Dutch oil giant Shell has won the rights to develop one of the largest oil fields in the world in the south of Iraq.

The 13 billion barrel Majnoon oil field in the south of Iraq was the largest on offer in Iraq's second international oil auction since the 2003 US invasion. The oil field will be developed together with Petronas from Malaysia.

A consortium led by China National Petroleum Corporation, China's largest oil and gas producer, in cooperation with Petronas and France's Total, won the contract for the Halfaya oil field, also in the south.

The auction was a bit of a disappointment as contracts were signed for only two of the ten oil fields on offer. An earlier auction in July yielded only one contract.

Oil companies are still reluctant to return to Iraq, from which they were expelled in 1972, when Saddam Hussain nationalised the oil industry.

The security situation remains a serious concern: just this week 127 people were killed in suicide attacks in Baghdad. Elections in March next year could add to political strife in the country.

Other concerns are uncertainty over a new oil law, and the legal conditions of doing business in Iraq in general.

Shell's contract is a service agreement: officially Shell and Petronas are merely giving "technical assistance" to Iraq. Shell has a 45 percent stake in the project, Petronas 30 percent and the Iraqi oil ministry 25 percent.

Shell and Petronas have committed themselves to raising production at Majnoon (which means crazy in Arabic) from 46,000 barrels per day today to 1.8 million barrels in ten years’ time. The oil companies get 1.39 dollars per barrel.

Iraq holds the world's third largest proven oil reserve, estimated at 115 million barrels.