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By Ahmed Rasheed
BAGHDAD (Reuters) - Iraq's Oil Ministry said on Thursday it had signed a deal with Britain's BP and China's CNPC to develop its super-giant Rumaila oilfield, a milestone in Iraq's efforts to renew its struggling oil sector.
"The signed contract will be referred to the cabinet for approval, after which the Oil Ministry will hold a ceremony to announce the beginning of work by the two companies," Oil Ministry spokesman Asim Jihad said.
Jihad said the agreement was signed in Baghdad by the ministry, represented by Iraq's state-run South Oil Company, and officials from CNPC and BP.
The service contract for Rumaila was the only deal which emerged from the ministry's first oilfield auction in June, a centrepiece of its strategy to bring new life to a sector rich in reserves but in desperate need of foreign cash to overhaul dilapidated facilities and outdated practices.
While most oil firms at the auction balked at Iraq's stiff payment terms, BP and CNPC cut their proposed remuneration fee to $2 (1.24 pounds) per barrel and won the Rumaila contract.
BP holds a 38-percent stake in the venture, while CNPC has a 37-percent share. Iraq's State Oil Marketing Organisation controls the rest.
Rumaila is the workhorse of Iraq's oil industry today, with a current capacity of 1.1 million barrels per day (BPD), almost half Iraq's total output of 2.4 million bpd.
The field's reserves are estimated at 16.998 billion barrels.
BP and CNPC aim to boost output to 2.85 million barrels per day as a plateau target over the life of the 20-year contract.
Such a dramatic increase in output from Rumaila alone would transform the overall level of Iraqi exports, ministry officials said as they defended the outcome of the June auction.
Oil insiders will be watching closely in December, when the ministry will offer 10 other oilfields in a second global auction, to see if the ministry has changed its approach to brokering deals with foreign firms.
Iraq, which relies on oil exports almost exclusively to fill government coffers, needs to boost production urgently in order to pay for improvements to its woefully poor power and water infrastructure, along with a host of other reconstruction works.
It is also pursuing several other stand-alone energy deals with foreign firms like Royal Dutch Shell.
Earlier this year, CNPC became the first foreign firm to operate an Iraqi oilfield in decades when it started work on the southeastern Ahdab field.
But the opening of Iraq's oil sector has been overshadowed by ongoing violence, a shadowy legal and regulatory framework and the bitter feud between the central government and minority Kurds in their semi-autonomous enclave in northern Iraq.
Kurd-Arab quarrelling in particular has held up passage of national oil and gas legislation that would define the contracting process for foreign firms and set out how Iraqi authorities would share revenues from oil exports.
While the legislative impasse may not have scared off big firms like BP or Shell, it could hinder smaller companies from signing up to develop moderately sized fields.
(Writing by Missy Ryan; editing by James Jukwey)

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