BAGHDAD - The threat of bombs and violence will compete with the lure of some of the world's most promising oilfields when oil majors fly into Baghdad this week to bid in Iraq's second auction of oil contracts since the U.S. invasion.

The risks, nearly seven years after U.S. forces toppled Saddam Hussein, were on display on Tuesday when a series of car bombs killed 112 people in the capital, rattling the windows of the Oil Ministry where the December 11-12 auction will be held.

Workers gardening, painting and laying carpets and cables at the ministry to prepare for the auction scrambled for cover as the rumble of the explosions rolled across town.

Ten largely untapped oilfields will be up for grabs, including supergiant fields like Majnoon with 12.6 billion barrels in estimated reserves, and West Qurna phase two, which has 12.9 billion barrels of oil.

They rank among the biggest, most accessible hydrocarbon deposits left on earth, and could add more than 2.6 million barrels per day to Iraq's oil output of 2.5 million bpd - helping to catapult the country into the top league of global oil producers.

The bulk of the planet's top oil companies, including Exxon Mobil (XOM.N), Royal Dutch Shell (RDSa.L), BP (BP.L), Chevron (CVX.N) and Total (TOTF.PA) will compete for the deals -- if executives come despite Tuesday's bombings.

The vastness of its undeveloped reserves, its nine supergiants, among the lowest extraction costs in the world at $2 per barrel, and the fairly decent deal being offered by the government of Iraq -- it's difficult to overstate the attractiveness of these fields for oil companies, said Evan Pressman, a partner at Iraq-focussed research firm Ergo.

But while the wholesale sectarian slaughter triggered by the 2003 U.S.-led invasion has abated, many risks remain.

If they bear fruit, contracts that are emerging after Iraq's first post-invasion auction in June and those that will be struck this week, plus other deals being pursued separately, could take Iraqi oil output capacity up to levels that rival Russia's 10 million bpd and Saudi Arabia's 12.5 million bpd.
That would bring in the billions of dollars that Iraq needs to rebuild after decades of war, international sanctions imposed for the 1990 Kuwait occupation, and the neglect and sabotage that accompanied the years of warfare since the U.S. invasion.

ATTRACTIVE TARGETS

But it also makes the auction, and the oilfield projects themselves, tempting targets for Sunni Islamist insurgents like al Qaeda and supporters of Saddam's outlawed Baath party.

Both groups remain determined to undermine Iraq's now Shi'ite Muslim-led government, ahead of a general election next year, by killing scores in terrifying attacks.

The fissures that led to horrific bloodshed between once dominant Sunnis and majority Shi'ites have not healed.

Disputes between the Arab-led government in Baghdad and minority Kurds in their semi-autonomous northern enclave over oil wealth and land, including the city of Kirkuk and its surrounding oilfields, could ignite a future war.

On top of that, investors face daunting bureaucracy and corruption. Parliament has failed for years to approve modern hydrocarbon laws needed to define the rules for foreign investment and the distribution of oil revenues.

There is also a significant political risk in the parliamentary election, now scheduled for March 6.

NO GUARANTEE
There is no guarantee that the next Iraqi government will honour any of the oil deals signed by the Oil Ministry under Prime Minister Nuri al-Maliki, lawmakers say.

The auction on Friday and Saturday will be broadcast live from the Oil Ministry, a heavily-guarded complex outside the secure Green Zone of government agencies and embassies.

The contracts are 20-year deals that pay per-barrel remuneration fees. Winners will be selected based on the fee the consortiums are willing to accept, their projected initial oil production levels and ultimate plateau production targets.

The competition will be conducted transparently, Oil Minister Hussain al-Shahristani said through spokesman Asim Jihad. We are moving forward in developing our oil industry so all Iraqis can benefit from this blessing and live in dignity.

Only one deal was struck at the first auction of contracts for already producing fields in June, when international oil companies balked at Iraq's stiff terms.

BP and Chinese partners CNPC won Rumaila, Iraq's biggest oilfield, after accepting a fee of just $2 for each additional barrel of oil produced. That was half what they had wanted.

But Iraq and the oil majors have negotiated more deals since then and had time to better understand each other's expectations, executives say. That means the second round may see more bids and be more competitive.

I expect this bidding round to be heavily contested, especially by companies that weren't so sure and didn't know how to play it in the first round, said a senior oil executive.

They understand the contract model, the Iraqi oil ministry and the risks a lot more. These are oilfields of considerable size, so there is a lot at stake.
(Additional reporting by Ayla Jean Yackley in Baghdad and Simon Webb in Dubai; Editing by Anthony Barker)

(Editing by Anthony Barker)

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