New Delhi: ONGC Videsh Limited, the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC), may invest over USD 1.5 billion in exploring for oil in a block that was awarded to it by the erstwhile Saddam Hussein regime.

"We are nearing finality on the contract for Block-8. It is likely to be signed in next six months," an official said.

Block-8, located in the western desert in southern Iraq bordering Saudi Arabia and Kuwait, was awarded to OVL in November 2000 by the then Saddam Hussein Government. However, the government formed after the US invasion of the oil-rich country, sought re-negotiation of the contract which has now been concluded.

The post-Saddam Hussain regime had initially agreed to sign of a Production Sharing Contract (PSC), where OVL would have got ownership of the oil it produced from Block-8. But the success of post-war licensing rounds, where global majors committed to develop oilfields for a small fee, has seen Baghdad change track and offer a service contract to OVL.

The block already has a discovery and is estimated to hold 645 million barrels of in-place reserves, of which 54 million are recoverable, he said, adding OVL has committed investing USD 86 million in two phases of exploration and USD 1.45 billion in development of the reserves thereafter.

The contract would be a service contract wherein OVL will be paid about 18 percent rate of return on its investment. The company holds 100 percent interest in the block.

"We are currently agreeing on finer details of the contract," he said. Exploration and development contract for Block-8, Western Desert, was signed by OVL with the Oil Exploration Company of Iraq, on November 28, 2000, at New Delhi.

As per the 2000 contract, OVL was to reprocess and interpret existing 2-D seismic data. It was also to acquire process and interpret 1,000 km of 2D and carry out 300 sq km of 3D seismic survey besides drilling two wells.

The service contract now being drawn would be similar to the one China National Petroleum Corporation (CNPC) had signed recently for developing Al-Ahdad oilfield in central Iraq. "It will be a service contract wherein OVL will be paid about 18 percent rate of return on the investment it makes in finding and producing oil from Block 8," the official said.

It would act as the operator of the field until it recoups all its costs and set up a joint operating company with the local operator to take over once development costs have been repaid.

Baghdad has, however, refused the Tuba oilfield, for which OVL, in consortia with Reliance Industries and Algeria’s Sonatrach, were in negotiations before the US attack on Iraq.