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Iraqi Oil Auction: Asian, European Countries Snap up Contracts

Once again, China has snapped up -- as part of a consortium with minority partner Total -- one of two development contracts awarded by the Iraq Oil Ministry. In short, China's hunger and desire to develop Iraqi oil fields has been unmatched by any other Western oil company.

The other winners of this latest round were Royal Dutch Shell and Petronas of Malaysia, which were awarded rights to develop the Majnoon oil field, one of the world's largest remaining untapped oil fields, according to a NYT report. The Majnoon oil field holds an estimate 12.6 billion barrels. Both contracts were awarded for fields in southern Iraq. Fields in northern Iraq and near Baghdad's Sadr City attracted either no bids or a single, unsuccessful bid that sought three times more profit than the Iraqi government was willing to offer, Christian Science Monitor reported.

These "wins" are really chances, a small opening in a door to Iraq that has remained firmly shut for years. The contracts will not be a boon for Shell, CNPC or the others. The terms of the contracts are far from the generous category. Companies awarded contracts will receive a flat fee, which means that even when oil prices climb past $100 a barrel, they will not benefit. Shell-Petronas agreed to a $1.39 per barrel fee from Iraq in the contract to develop the Majnoon oil field, according to various reports including the NYT.

One potential winner may be oil field service companies, an analysis from Reuters notes. The territory is opening for oil field service companies in a time, when other areas including Mexico are scaling back some areas of drilling. Last month, Halliburton's largest Mexican customer Petroleos Mexicanos, announced it would reduceits exploration plans in the Burgos field and others in Veracruz and southern Mexico, a move that will squeeze the oil field company's profits in the fourth quarter. Mexico's state-owned oil company Pemex has already cut drilling plans at its $11.1 billion onshore Chicontepec field, where Halliburton operates. Other major oil field companies including Schlumberger have service contracts at Chicontepec.

Earlier this summer, China National Petroleum Co., along with consortium partner BP, won the only bid in the first auction of oil contracts held since the U.S.-led invasion of Iraq in 2003. Iraq's Oil Ministry offered up six oil and two gas fields in July. In the end and out of the 22 companies that placed bids in the auction, one contract was secured to develop the Rumaila field in southern Iraq. BP was the only firm at that time willing to lower its per barrel feel to $2, the maximum amount the oil ministry said it would pay.

China is already operating in Iraq. CNPC signed a 23-year service agreement last year to develop the Al-Ahdaboil field south of Baghdad. The deal is worth $3 billion.

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