CNPC to develop Ahdab oil field in Iraq

Eric Watkins
Senior Correspondent

LOS ANGELES, Aug. 30 -- The Iraqi Ministry of Oil, renegotiating an agreement first signed more than a decade ago, has approved arrangements that will allow state-owned China National Petroleum Co. to develop Ahdab oil field.

The agreement, which restores a project that was cancelled after the 2003 US-led invasion of Iraq, was signed by Chinese officials and Iraqi Oil Minister Hussain al-Shahristani.

Under the contract, which still requires approval of the Iraqi and Chinese governments, CNPC will provide technical advisers, oil workers, and equipment to increase production at the field, which is in Wasit province, about 160 km southeast of Baghdad.

Shahristani said the two sides agreed to renegotiated terms of a deal signed in 1997. He said the contract has been changed to a set-fee service deal from the oil production-sharing agreement signed earlier.

CNPC will help Ahdab produce 110,000 b/d, up from the originally agreed 90,000 b/d, with first output expected in 3 years. According to Shahristani, the field should have an active life of some 20 years.

CNPC will own 75% of the joint venture, with Iraq's state-owned Northern Oil Co. owning the remaining 25%. Shahristani said the contract, currently valued at some $3 billion, would be reviewed every quarter over its 22-year term.

Analysts saw the agreement as a breakthrough for China and CNPC over other countries and international oil companies.

Liu Youcheng, a Beijing-based analyst with Hongyuan Securities, noting that it has become more and more difficult to obtain equity and exploit rights in oil fields, said it is good for China to participate in the development through a service contract.

Alex Munton, an analyst with consultant Wood Mackenzie, said the biggest significance of the agreement is that CNPC will benefit as the first international oil company to be developing one of the giant discovered oil fields in Iraq in the new era.

According to Munton, CNPC will be the first with people on the ground and the first to develop a working relationship with Iraq's Oil Ministry.

IOC deals rejected
Iraqi oil ministry officials earlier expressed hopes of signing contracts with international oil companies by the end of June. Now, according to ministry spokespersons, those talks with such firms as Royal Dutch Shell PLC, BP PLC, and Exxon Mobil Corp. are unlikely to proceed.

Last week, a top Iraqi official criticized international oil companies for trying to overcharge the war-torn nation and for ignoring what he referred to as their "humanitarian" duty to help develop Iraq's battered oil industry.

The charge came after Iraq delayed the signing of short-term oil service contracts with oil majors due to disagreements over payment terms and their duration.

"The invitations to take part in these projects have not only an economic but a humanitarian character," said Iraq's electricity minister Karim Waheed after meetings with Russian energy minister Sergei Shmatko and the heads of Russian energy service firms.

"Some companies in those cases demanded sky-high prices for their services, thinking Iraq does not have a grasp of international financial markets. They were unpleasantly surprised when they found out we fully understand global commodity markets and global stock markets," Waheed said.

Contact Eric Watkins at hippalus@yahoo.com.

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