Iraq lures investors to boost its oil output as OPEC debates cuts

Wed Oct 26, 2016 10:51am EDT
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By Dmitry Zhdannikov, Ahmed Rasheed and Ahmad Ghaddar

LONDON/BEIRUT (Reuters) - As OPEC gathers in Vienna next month to consider cutting its oil output, a lower profile event in Baghdad on the same day will signal Iraq's longer term ambition to do precisely the opposite.

Nov. 30 is both the date when OPEC ministers meet in the Austrian capital and the deadline set by Iraqi oil minister Jabar Ali al-Luaibi for international firms to submit bids to help it develop 12 "small and medium-sized" oil fields.

Crude output in Iraq, OPEC's second largest producer, is already rising dramatically despite corruption, poor infrastructure and the fight against Islamic State. This is complicating OPEC's efforts to revive prices by making its first output cut since the 2008 global financial crisis.

Ministers from the Organization of the Petroleum Exporting Countries are supposed to decide in Vienna which member states will make the cuts under an outline agreement struck last month.

Iraq says it will not reduce output because it needs oil money to combat Islamic State, and Prime Minister Haider al-Abadi offered strictly limited support on Tuesday. "We are prepared to cooperate on the correct basis," he said. "We want oil prices to increase."

At around $50 a barrel, crude prices are less than half their levels in mid-2014 and OPEC is seeking a production deal that will last at least six months.

Developing the 12 Iraqi oil fields, which lie in southern and central areas away from Islamic State strongholds, will take longer than that. Nevertheless, fellow OPEC members and rivals need read no further than the terms of the new tender to understand Baghdad's intentions.

The tender document sets quick output gains as the main requirement to win the contracts. Baghdad also wants maximum revenue, including from selling gas produced as a by-product of the crude extraction, rather than simply burning it off.   Continued...

Flames emerge from a pipeline at the oil fields in Basra, southeast of Baghdad, Iraq October 14, 2016. REUTERS/Essam Al-Sudani/File Photo