Iraq, Opec's second-largest producer, has approached PetroChina and ExxonMobil about investing in a multi-billion-dollar project to boost output from its smaller southern oilfields, a senior Iraqi oil official said.
 
State-run South Oil Company (SOC) is seeking investment from either or both of the companies to build infrastructure needed to raise output at fields it operates, SOC deputy chairman Basim
Abdul Kareem told Reuters.

A sharp fall in crude oil prices since mid-2014 has hurt Baghdad's ability to fund oilfield development and foreign investments are needed, he said.

The enhanced recovery project targets the Luhais, Nassiriya, Tuba, Nahr Bin Umar and Artawi oilfields, he said.

They are producing about 240,000 barrels per day (bpd) currently and SOC's initial plan calls for raising that to about 350,000 bpd in 2016.

The "Integrated South Project" consists of building oil pipelines, storage facilities and a seawater supply project to inject water from the Gulf to maintain pressure and enhance oil recovery, he said.
 
The seawater project will also be used to overcome declining production rates at larger fields such as West Qurna, Majnoon, Zubair and Rumaila, operated by oil majors such as BP, Royal Dutch Shell, Eni and Lukoil.

"Due to the current financial crisis caused by the falling oil prices, we established the 'Integrated South Project' to attract financiers and investors to help us increase our production and complete these vital energy projects," Abdul Kareem said.

"We are still discussing technical aspects of the project which will be followed by studying financial and contractual issues."
    
The contract model will be discussed with the companies and the oil ministry in Baghdad after the technical talks, he said.

"Definitely, it will not be a service contract" where the companies would get a fixed dollar fee per barrel, he said.
 
"We prefer a contract that could be profitable for all parties even under low oil prices," he added, declining to say whether production-sharing contracts would be considered.
 
Companies favour production-sharing deals where they recoup their investment with oil produced, as this model allows them to book their share in the oilfield on their balance sheets, increasing their assets.
 
"We are seeking both companies or either one to accept the project," said Abdul Kareem, declining to say how advanced the talks were.

Petrochina has shown more interest than Exxon in the project, another SOC official said, declining to be identified.

The two companies were approached because they are developing the West Qurna phase 1 oilfield that needs water injection to halt a decline in production, said the official.

Oil sales generate 95 percent of Iraq's revenue and a price fall to less than $40 per barrel from $115 in mid-2014 has hit hard.

Iraq's production stagnated for years due to wars and sanctions but started to rise in 2010 after Baghdad secured service contracts with companies including BP Plc, Exxon Mobil, Eni and Royal Dutch Shell.

They are paid a fixed-dollar fee for production, a formula that has became difficult for Iraq with oil prices so low.

Exports rose to a decades-high average of 3.37 million bpd in November with output at 3.66 million bpd, ministry data showed.-Reuters