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Iraq’s cabinet ratified a contract with BP and China’s CNPC to develop the super-giant Rumaila field, the first major new oilfield deal signed since the 2003 U.S. invasion, a senior licensing official said on Saturday.

Separately, Iraqi oil officials are in talks again with Royal Dutch Shell on revising its offer to operate the Kirkuk oilfield, after Europe’s biggest oil company failed to win the license in Iraq’s first bidding round in June.

Cabinet approval for the BP contract, which came late on Friday, sends “a strong signal” to other international oil companies seeking contracts to develop Iraq’s vast hydrocarbon resources, Abdul-Mahdy al-Ameedi, deputy director of Iraq’s Petroleum Contract and Licensing Directorate, told Reuters.

“We believe that we have a strong pillar now for our work toward realizing our plans,” he said in Istanbul, where Iraqi officials are meeting oil majors in a workshop on a second auction of oilfield contracts planned for December.

The oilfield contracts tendered this year are a central plank of Iraq’s aspirations to more than triple current oil production of 2.5 million barrels per day and catapult itself to third place from 11th in the league of oil producing nations.

The Iraqi Oil Ministry says that cabinet has the final say on the contracts, but some lawmakers insist that deals must also be sent to parliament for approval. An oil law to establish a framework for foreign investment has been delayed for years.

Analysts have said there are no guarantees contracts will be considered legal by future Iraqi governments, pointing to deep rifts among politicians over control of oil wealth. The next election is due to take place on January 16, 2010.

WORKHORSE

BP and CNPC were the only successful bidders in the first round at the end of June. The contracts on offer in both rounds are aimed at reviving the oil sector after the invasion and years of sanctions and under-investment.

Rumaila is the workhorse of Iraq’s oil industry, with capacity of 1.1 million barrels per day (bpd). Reserves are estimated at 16.998 billion barrels.

Production at Rumaila is expected to reach 2.8 million bpd after six years, Ameedi said. Iraq’s total output, including giant fields at Zubair and West Qurna, should be more than 7 million bpd by then, he said.

Shell representatives and Iraqi officials, meanwhile, have held fresh talks to negotiate a service contract for the oilfield of Kirkuk, Ameedi said. At the first auction of oilfield contracts in June, Shell balked at accepting the low $2 per barrel fee that Iraq was willing to pay for operating the field.

“We are concerned about the technical proposal, about the remuneration fees. All these things are being discussed,” Ameedi said.

Iraq has reduced taxes and improved terms to make deals more profitable after the lacklustre response in June’s auction.

Earlier this month, a consortium led by Italy’s Eni crept closer to inking a deal to develop Zubair, yet to be signed, and Iraqi officials have said they are close to agreeing on a service contract for West Qurna. 

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