The deals could provide the extra 200,000 barrels per day (bpd) in exports Iraq wants from the southern Basra terminal by the end of 2008. Basra accounts for most of Iraq's exports, shipping more than 1.5 million bpd.
"Provided they are signed promptly, these deals could give quick progress," said an executive at a western oil company negotiating for one of the contracts. "They are the first step towards real improvement in a sector that has been under stress for 30 years."
Iraq expects June exports to reach 2.2 million barrels per day, the highest for monthly shipments since the U.S.-led invasion of March 2003. Baghdad sees exports rising further to 2.3 million bpd by the end of 2008.
The oil sector has increased output as security has improved but oil companies remain nervous.
Iraq will contract international oil firms to help manage operations at its largest producing fields such as Rumaila in the south, supplying equipment to refurbish dilapidated infrastructure.
The two-year deals call for a total output boost of 600,000 barrels per day. Once the contracts are signed, Iraq plans to offer the same fields in a bidding round for longer-term development.
The industry needs billions of dollars for renewal and expansion. The service deals are part of stop-gap measures to attract part of that investment in the absence of a vital oil law. Political disputes have stalled the passage of an oil law through parliament for over a year. The legislation aims to set the terms and extent of foreign investment in developing the world's third largest oil reserves.
"Considerable progress can be made without the law," said Muhammad-Ali Zainy, senior energy analyst at the London-based Centre for Global Energy Studies. "These contracts are a big step forward and will help bring new methods and technology to these important fields."
BETTER SECURITY
Improved security has yielded gains of nearly 500,000 bpd in northern exports since last summer. Sabotage had kept that line mostly idle since the war. Baghdad hopes to see Kirkuk oil exports up by another 100,000 bpd by the end of the year. Oil Minister Hussein al-Shahristani said this week he was optimistic that Iraqi forces would keep security tight at oil facilities, helping to bolster the confidence of foreign investors discouraged by sectarian violence.
Rising output and exports are allowing Iraq to cash in on record oil prices and have raised the prospect of an accelerated recovery in its shattered economy. Iraq has a 10-year plan to boost output from 2.5 million bpd this year to 6 million bpd, Shahristani said this week. It aims to hit 4.5 million bpd in five years. But for those larger long-term gains, Iraq needs the oil law in place for international oil companies to play a bigger role in developing untapped fields.
"We remain very cautious in terms of further capacity expansion," said Alex Munton, analyst at global consultancy Wood Mackenzie. "Iraq has almost reached the point, simply by repairing the damage of the last few years and adding security around main pipelines, of maximum capacity with the infrastructure in place. But there is little likelihood of being able to add to that without much larger-scale investment and the assistance of international oil companies."
Even with the law, international oil majors have said it would be years before security improves enough for them to be able to send ground staff to Iraq. They intend to manage the new technical service contracts from outside the country, and will rely on Iraq's state oil companies to execute their plans. The law is meant to help bridge divides between Iraq's Shi'ites, Sunni Arabs and Kurds. Control of oil reserves is one of the principal disputes.
The Iraqi Kurdish region's prime minister said on Tuesday that it would take fresh proposals to Baghdad on the oil law in the next two weeks. The Kurds' top energy official said he hoped the law would pass this year.
