Economy

Cnooc bags oil field deal in Iraq

By Wan Zhihong (China Daily)
Updated: 2010-05-18 07:53

BEIJING - Cnooc Ltd, the listed unit of China National Offshore Oil Corp, and Turkish Petroleum Corp (TPAO), clinched a deal on Monday to develop the Missan oil fields in southern Iraq.

A worker operates valves at the Rumaila oil refinery, near Basra, Iraq. [Provided to China Daily]

The two companies have bagged a 20-year technical services contract to increase the output of the Missan oil fields, located 350 kilometers southeast of Baghdad, to 450,000 barrels per day (bpd) over the next six years, Cnooc said in a statement.

Earlier media reports said the current production of the fields is 100,000 barrels per day.

Cnooc will earn $2.3 per barrel on the incremental oil production once the daily output has been raised by 10 percent from its current level and will recover its expenditure through a cost recovery mechanism, said the statement.

The Chinese company will act as the operator and hold a 63.75 percent stake in the project. The Turkish state-owned company will hold an 11.25 percent stake and the Iraqi Drilling Co will have the remaining 25 percent stake in the project, said the statement.

The deal is however, still subject to approval from the Iraqi government.

It is a pleasure for Cnooc to participate in rebuilding of the oil industry in Iraq, said Fu Chengyu, chairman and CEO of Cnooc Ltd.

Cnooc and its partner will carry out an active investment plan on the development of the fields to increase output, Fu said.

Analysts said the move underlines domestic oil companies' focus on developing oil resources in Iraq. "The country remains one of the few regions in the world where Chinese companies can still find big opportunities," said Lin Boqiang, a professor at Xiamen University.

"Iraq will be our main focus in overseas development this year," Jiang Jiemin, president of PetroChina, the parent of China National Petroleum Corp (CNPC), told China Daily earlier.

CNPC and Britain's oil giant BP signed an agreement with Iraq's Oil Ministry last year to develop Rumaila, one of the largest oil fields in Iraq. It is expected to produce 10 percent more crude this year, executives with CNPC said earlier.

CNPC is expected to start seeing returns from its investment in Rumaila field from next year, according to sources with the company.

The Rumaila project is Iraq's first deal with foreign oil companies after the US invasion in 2003. It is also the biggest investment by CNPC in Iraq.

The Cnooc-TPAO deal is the eleventh since last year with international oil companies to develop the war-damaged country's vast oil reserves.

If all the agreements work out, Iraq could have a crude production capacity of 12 million barrels per day, close to top producer Saudi Arabia, in six to seven years, according to a report by Reuters.

Chinese oil major Sinochem was initially supposed to partner Cnooc in an unsuccessful bid for the oil fields in Iraq's first auction of contracts last year.

Cooperation with the Turkish company would reduce risks in the deal, said analysts.