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By Hassan Hafidh and Gina Chon
Of DOW JONES NEWSWIRES
BAGHDAD -(Dow Jones)- A consortium led by Italian energy giant Eni SpA (E) Monday signed an initial 20-year agreement with Iraq to develop the giant Zubair oilfield in southern Iraq, an Iraqi oil ministry official said.
The agreement, which was signed in the oil ministry in Baghdad, will be sent to the Iraqi Council of Ministers for approval before being a final deal that can be signed, the official told Dow Jones Newswires.
Under the terms of the deal, Eni, Italy's biggest energy company by market value, and its partners Occidental Petroleum (OXY) and Korea Gas Corp. (036460.SE) of South Korea will be paid $2 for each extra barrel of oil it extracts on top of current production at the field, but will be liable for a 35% tax on its profits.
Eni has said the development of the field would require investments of about $10 billion in the first six years to raise output from the field to 1.125 million barrels a day from 195,000 barrels of oil a day now.
However, Iraq's Oil Minister Hussein al-Shahristani, who was present at the signing, said Monday the field, in total and along the duration of the contract, would require an investment of $20 billion.
According to the contract, Eni and its partners would pay the ministry $300 million as a refundable five-year loan instead of paying a signature bonus.
The initial agreement was signed by representatives from Eni, Occidental Petroleum and Kogas and by Abdul Mahdy al-Ameedi, the deputy head of the Iraqi oil ministry's Petroleum Contracts and Licensing Directorate.
Iraq originally offered eight oil and gas fields to foreign energy companies at an auction in June, but only the U.K.'s BP PLC (BP) and China's CNPC reached agreement with Baghdad at the time.
The U.K. giant will sign a final deal for Rumaila, Iraq's largest oil field, on Tuesday.
Shahristani also said three consortia had accepted the ministry's fee of $1.90 a barrel to develop the giant West Quran-1 oilfield which was not awarded in the first auction held in Baghdad last June.
Already, competition is hotting up for rights to develop West Qurna-1 after three consortia out of four original bidders submitted revised offers for the giant field in southern Iraq, Shahristani said.
Of the original four separate consortia led by Russia's oil giant Lukoil (LKOH.RS) and Exxon Mobil (XOM) of the U.S. have submitted revised offers. But it is not clear whether the third offer comes from the consortia led by France's Total SA (TOT) or China's CNPC.
"We will announce some more details [about West Quran-1] in few days",the minister said
Iraq is also negotiating Nassiriyah oil field with a Japanese consortium led by Nippon Corp. We are finalizing [contract] details with Nippon, he added.
Iraq is also planning to auction 10 groups of oil and gas field on Dec. 11 and 12 this year.
-By Hassan Hafidh, Dow Jones Newswires; + 962 799 831 831; hassan.hafidh@dowjones.com
(Gina Chon of The Wall Street Journal contributed to this article.)