BAGHDAD- The Iraqi government said Saturday it has approved a contract with aBritish-Chinese consortium to develop a prized oil field in southernIraq, a significant achievement for a country that has struggled toattract foreign investors despite its vast natural resource wealth.
Thedeal was the only one to emerge from a disappointing bidding round inJune offering development rights for six oil and two gas fields. It wasIraq's first such bidding 
in over three decades, but foreign firms felt the prices set by thegovernment were too low given continued violence in the country anddisputes over natural resource control.
But things have beenlooking up in recent days for Iraq's hope to use increased oil revenueto recover from years of war and sanctions. Earlier in the week, threeinternational consortiums agreed to meet the Iraqi government's priceto develop oil fields in the country.
Even more important is theIraqi Cabinet's approval of the bid by Britain's BP PLC and its Chinesepartner CNPC to develop the 17.8 billion barrel Rumaila field nearIraq's southern city of Basra. The deal was approved late Friday, Iraqigovernment spokesman Ali al-Dabbagh told The Associated Press, withoutproviding further details.
According to the agreement, BP willhold a 38 per cent stake in the venture and CNPC will have a 37 percent share. Iraq's State Oil Marketing Organization will control therest.
"It is a very important event ... very promising for Iraq,"said Samuel Ciszuk, an energy analyst with the London-based IHS GlobalInsight. "The huge incremental this project alone could bring in arelatively short period of time ... is very important."
Iraq hasthe world's third-largest known oil reserves, and crude exports are thecountry's most important source of revenue. But Iraq's current dailyoutput of 2.4 million barrels is far below the country's potential.
Iraq'soil industry has been hampered by years of devastating wars, cripplingsanctions and sabotage attacks by insurgents after the 2003 U.S.-ledinvasion. In addition, Iraq's oil law, governing natural resources andregulating foreign investment, has been stalled in parliament since 2007, prompting international companies to stay away.
TheRumaila deal is the second major one struck by CNPC in postwar Iraq.Last year, CNPC signed a $3 billion deal to develop the al-Ahdab oilfield in southern Iraq.
The deal also marks the return of BP toIraq after the British oil giant and other Western companies werepushed out following the nationalization of the oil industry in the1970s.
Daily production from the Rumaila field is at about 1million barrels a day. BP's targeted production for the oil field is2.85 million barrels a day within seven years.
The BP-CNPC consortium originally bid to take $3.99 per barrel produced, but later slashed the offer to the $2 per barrel paymentsought by the Iraqi Oil Ministry. The competing bid in June was from aconsortium led by U.S. giant Exxon Mobil, which refused to amend itsoffer of $4.80 per barrel.
Earlier this week, Iraq's oil ministerHussain al-Shahristani said the ministry was revisiting the Junebidding after three international oil consortiums submitted revisedoffers and accepted Iraq's terms for developing two oil fields insouthern Iraq.
The two deals could be signed within with two weeks, al-Shahristani said.
Aconsortium led by Italy's Eni has agreed to develop Basra's 4.1 billionbarrel Zubair oil field for $2 per barrel produced based on a targetproduction level of about 1.1 million barrels per day.
Two otherconsortiums, one led by Russia's Lukoil and ConocoPhilips, and theother by Exxon Mobil with Royal Dutch Shell, are competing to developthe 8.6 billion barrel West Qurna Stage 1 oil field in Basra for $1.90per barrel.
The Lukoil-led consortium's targeted production is1.5 million barrels a day, while the other consortium's targetedproduction is 2.1 million barrels a day, al-Shahristani said.
Italy'sEni had previously bid $4.80 per barrel to develop the field, while theLukoil consortium submitted an earlier bid of $6.49 per barrel and theExxon Mobil-led consortium was asking for $4 per barrel.
Zubairis currently producing about 230,000 barrels per day, while West QurnaStage 1 is producing about 280,000 barrels a day. Al-Shahristani saidthat the three fields' combined output would exceed 6 million barrels aday in six years with a total direct investment from these firmsexpected to be about $100 billion.
The second bidding round isscheduled for December. Forty-five international oil companies are setto bid for 10 oil projects on offer.
The overall fall in oilprices since last year has forced the government to slash spendingplans for this year from $79 billion to $58.6 billion. The oil sectorrepresents about 65 per cent of Iraq's gross domestic product and itsrevenues account for 95 per cent of Iraq's earnings.
© The Canadian Press, 2005