Global Policy Forum

By Benoit Faucon and Spencer Swartz

Oil giants Total SA (TOT) and Chevron Corp. (CVX) have signed a services agreement that would lead to the two jointly exploring and developing hydrocarbons from one of Iraq's biggest oil fields once the country gets an oil law in place and security on the ground improves, people familiar with the deal say.

The two companies signed an agreement last year and are currently assessing above-ground conditions around Majnoon, Iraq's fourth biggest oil field, which sits near the border with Iran, and at least one other field in the south of Iraq, to see what development work is required, the people told Dow Jones Newswires.

The Iraqi government is aware of the services deal, said the people, who are close to both companies.

Total, Chevron and Iraqi officials met in June to discuss the implementation of the agreement. The deal, however, doesn't yet involve the Iraqi government. "There is no deal for a production-sharing agreement" on Majnoon since the country's long-delayed hydrocarbons law has yet to be ratified, the person said. "But the services contract gives (Total and Chevron) a large advance," on other companies, the person added.

Majnoon had a daily production capacity of around 50,000 barrels prior to the U.S.-led war in Iraq in 2003, according to the U.S. Department of Energy's statistical arm.

The field has estimated total reserves in place of 12 billion barrels, making it Iraq's fourth biggest field after Kirkuk, East Baghdad, and Rumaila North & South, the country's biggest, according to Bernstein Research. Another person said Chevron and Total were also working on the Nahr Bin Omar oil field, also in Southern Iraq, under the services pact. This field is estimated to hold some 6 billion barrels in reserves.

The Total-Chevron deal underscores that even as Iraq's oil law languishes in Baghdad, foreign oil companies are maneuvering to prepare development plans that will serve as a basis for contract negotiations with the Iraqi government once the draft law is passed. To be sure, foreign oil companies won't begin working in Iraq until security improves in the country, but many of them will look to quickly stitch up deals with the government once the oil law is in position. Iraq's parliament in Baghdad is expected to debate the federal hydrocarbon law in early September after its August recess.

Many issues remain to be worked out between Iraq's warring factions, such as the powers the autonomous Kurdish regional government in northern Iraq will have over managing oil and gas discovered in there.Another person close to Total said the companies were starting to study local operating conditions, including security.

In the 1990s, Total signed tentative agreements to develop Majnoon and Nahr Bin Omar in case the country was freed from sanctions. But the administration that replaced Saddam Hussein's regime after his fall in 2003 has said it wouldn't recognize deals signed under him.

Chevron, based in San Ramon, California, would neither confirm nor deny the services deals with Total.

Chevron spokesman Michael Barrett said it wouldn't comment on market speculation over its investment activities.

Like many foreign oil companies, Chevron has said in the past that it is offering technical assistance to Iraq's Oil Ministry by providing equipment and training to government staff.