IRAQ. A consortium of oil companies led by Exxon Mobil on Thursday signed a contract to develop one of Iraq's largest oil fields, a spokesman for the Oil Ministry said.

The consortium, which also includes Royal Dutch Shell, agreed to boost production from West Qurna oil field from its current level of 160,000 barrels per day (bpd) to 2.325 million bpd over the course of its 20-year contract, Oil Ministry spokesman Assim Jihad told the German Press Agency dpa.

Jihad said Exxon and Shell's offer to boost production so significantly had helped it beat Russian energy giant Lukoil in bidding for the contract, which began last June.

Thursday's deal, which must still be approved by the cabinet, is the second major oil contract to be awarded to an international consortium this week.

On Tuesday, a consortium led by British Petroleum (BP) and China's CNPC became the first international group to finalize an oil contract with the Iraqi government since Iraq nationalized its country's petroleum resources in 1972.

The contract to develop West Qurna 1, the war-torn country's second largest field, will boost its production more than eight-fold to 2.325 million barrels per day (bpd), said Oil Minister Hussein al-Shahristani.

"The companies will spend 50 billion dollars -- 25 billion on operations and a further 25 billion in development," he said, referring to the winning bid, in which Exxon holds an 80-percent share and Anglo-Dutch firm Shell the balance.

Both fields are in southern Iraq, home to most of the nation's oil.

West Qurna 1 currently produces about 279,000 bpd and has reserves of around 8.5 billion barrels, according to oil ministry figures.

Rival consortiums led by Exxon and by Russia's Lukoil had submitted bids which both met Iraq's conditions. The offers came ahead of a second round of international bidding for contracts in mid-December.

"We look forward to signing the final agreement in the near future, and to many, many years of cooperation with our colleagues in the Southern Oil company and here in the (oil) ministry," Exxon's president of upstream activities Richard Vierbuchen told reporters at a preliminary signing ceremony in Baghdad.

Iraq relies on the 2.5 million bpd it produces for more than 90 per cent of its government revenue and about 60 per cent of its Gross National Product. If the companies can deliver on their promises, the two contracts signed this week would double Iraq's production.

Yet there is real domestic opposition to foreign oil companies' re-entrance to the market.

The Iraqi Federation of Oil Unions has opposed the contracts, and has threated to strike if they were approved. It also remains unclear whether future governments, including the one to be chosen in the next January's elections, will honour contracts signed now.

raq's 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.

"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 near the central city of Kut, 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 open bidding since nationalisation.

"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 added.

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 aging energy infrastructure, meanwhile, 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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