June 25 (Bloomberg) -- Iraq is set to welcome back foreign oil companies into the war-torn nation to develop the world’s third-largest crude reserves three decades after expelling them.

Eight of the world’s top 10 non-state oil producers, including Exxon Mobil Corp. and Royal Dutch Shell Plc, are vying for the right to help Iraq develop six oilfields and two natural-gas deposits. More than 30 companies in total are bidding for $16 billion worth of technical service contracts for producing fields that will be awarded in Baghdad on June 29-30.

“Iraq is the big prize in the region,” said Raja Kiwan, a Dubai-based analyst at consultants PFC Energy. “It is one of the only remaining areas that provide the level of upside for companies who want to access reserves.”

The OPEC producer is struggling to increase output and revenue from crude sales after six years of conflict and prior sanctions destroyed the country’s economy and infrastructure. The government, also running a second bidding round for 11 oil and gas fields, aims to boost production to about 6 million barrels a day by 2015, from 2.4 million barrels in May. Saudi Arabia, the world’s biggest oil exporter, produces 8 million barrels a day.

Companies investing in Iraq are looking to take a stake in the long-term potential that the country’s 115 billion barrels of reserves hold after gaining a foothold through the service contracts for operational fields. Iraq may offer foreign companies direct stakes in deposits and allow them to sign production-sharing agreements for future fields, according to Oil Minister Hussain al-Shahristani.

Iraqi Benefits, Security

Iraq will earn 100 times more than the foreign companies it hires to develop the deposits, the minister told parliament in Baghdad on June 23. The deposits being offered in the first licensing round may yield $1.7 trillion in profit for the country, based on an oil price of $50 a barrel, while oil companies seeking service contracts will gain $16 billion over the 20-year life of the contracts, he said.

Winning the oil contracts may be easier for foreign companies than contending with security threats in Iraq and objections to the bid-round by some lawmakers. Irving, Texas- based Exxon is still deciding whether to bid, Chief Executive Officer Rex Tillerson said June 16. The Hague-based Shell was in talks with Chinese companies on bidding jointly for the contracts, CEO Jeroen van der Veer said April 14.

U.S. Troop Withdrawal

U.S. troops are due to pull out of Iraq’s cities by June 30 and the entire country by the end of 2011, and Iraqi officials have said the nation’s security forces will be able to cope alone. Iraq and Britain signed a draft agreement on June 3 for some U.K. troops to remain in the country to help Iraqi naval forces protect oil platforms.

Prime Minister Nuri al-Maliki’s government has been criticized by lawmakers for its failure to raise oil production faster and they want the licensing round scrapped because of concerns the deals won’t benefit Iraq.

Al-Shahristani defended government policy in parliament this week, saying foreign investment will raise production and profit while overseas oil companies will get a fee for developing deposits without taking stakes in any fields.

Iraq’s reserves are so large and so little developed that foreign companies are willing to take the risk, said Tariq Shafiq, an adviser with London-based Petrolog & Associates and a former Iraqi Oil Ministry official who helped write the nation’s draft oil law. The country’s parliament has not approved the oil law due to disagreements between the government and lawmakers.

‘Anybody Serious’

“Anybody serious about being an international oil company over the next few years has to enter Iraq,” Stephen Chazen, Occidental Petroleum Corp.’s chief financial officer, said in an interview yesterday. The company plans to bid for contracts in Iraq, CEO Ray Irani said.

In 1972, Iraq nationalized concessions owned by companies now known as BP Plc, Shell and Exxon. Iraq is the only member of the Organization of Petroleum Exporting Countries not bound by production quotas as the group lowers output to bolster prices amid the global recession. Crude traded above $70 a barrel in New York today, a gain of 57 percent this year.

Oil companies are seeking access to new reserves as production declines at aging fields in the North Sea and resources like those in Saudi Arabia and Iran are restricted for foreign firms. The new Iraqi contracts may also increase demand for drilling and engineering equipment as companies compete for equipment to develop fields in Saudi Arabia, Kuwait and other Gulf countries.

‘First Foot In’

“There’s a huge amount of pressure on all international oil companies looking at Iraq to make sure they have the first foot in,” said PFC Energy’s Kiwan.

Saudi Arabia is the world’s largest holder of reserves with 264 billion barrels, followed by Iran with almost 138 billion barrels. Iraq may be a more attractive long-term development for international investors since it has produced only about 8 percent of its oil compared with more than 20 percent by Saudi Arabia and Iran, Shafiq said.

To supplement income from the contracts, the government is also asking winning bidders to provide a total of $2.6 billion in loans, which will later be repaid. Iraq needs cash to build infrastructure, and the government plans to sell about $5 billion in bonds to help pay for power and water projects. This month it proposed a $70 billion spending plan for housing, agriculture and transport.

Kurdish Exports

Companies including Heritage Oil Ltd. and DNO International ASA are already exploring for and producing crude in Iraq’s semi-autonomous Kurdish region in the north. The Kurdish government pursued development contracts on its own and began exporting crude earlier this month after resolving a dispute with the national government over how revenue would be divided.

ConocoPhillips, based in Houston, was in talks about preparing joint bids with Russia’s OAO Lukoil and other potential partners, Chief Executive Jim Mulva said in a June 5 interview in St. Petersburg. Total SA, France’s largest energy company, will bid for the contracts, the Iraqi prime minister’s office said in a June 10 statement. StatoilHydro ASA, Norway’s biggest oil and natural-gas producer, was also preparing a bid, Peter Mellbye, vice president for international exploration and production, said June 16.

BP, Europe’s second-biggest oil company, is completing plans on whether to bid after being short-listed for the licensing round, spokesman Toby Odone said in an e-mailed statement yesterday.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net.

Last Updated: June 25, 2009 13:01 EDT