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Chinese Company Inks First Oil Deal With Baghdad

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The Iraqi Oil Ministry headed by Hussein al-Shahristani has substantially reinstated a 1997 agreement with the China National Petroleum Company (CNPC) for exploration and development of an oil field in Southern Iraq. The Al-Ahdab oil field in the Shiite dominated province of Wasit in southern Iraq is where the Chinese concession is located. This follows a 2006 invitation from the Iraqi government for CNPC to assist the Iraqis in doubling oil production.


Iraqi officials expect the initial production of the Al-Ahdab field to be 25,000 barrels per day rising to 125,000 barrels per day in three years.


The 1997 deal was tabled after U.N. sanctions and the U.S. invasion that followed made its execution impractical. The newly reinstated deal differs from the 1997 version in that it is for a period of twenty years rather than the earlier twenty-two and it is a service contract only, as opposed to the production sharing agreement arrived at in 1997. The value of the new arrangement is $3 billion rather the estimated $1.2 billion value of the earlier deal. Security arrangements, to be provided by the Iraqi government, are a part of this deal.


The new deal is awaiting approval from the two governments involved, although a report from Daniel Schearf of Voice of America claims that the Chinese Foreign Ministry maintains that negotiations continue over security arrangements and legislation to govern agreements with foreign oil companies.


Chinese investment analyst, Liu Weijiang of Hongyan Securities says that despite the agreement being a service contract only, the Chinese expect to have an inside track to securing some of those newly developed supplies. He added that due to China’s burgeoning growth and demand for energy, the Chinese are willing to make significant concessions to secure supplies of petroleum.


CNPC was one of thirty-five international oil companies that had been approved for bidding on these concessions as of April of 2008. Three other Chinese companies were qualified, these being the Chinese National Offshore Oil Corporation (CNOOC), Sinochem and Sinopec Group. Seven U.S companies were qualified for bidding, including oil giant Exxon Mobil and three companies from the U.K. were approved, among them, BP Group, PLC.


There are reports that factions in the Iraqi parliament favor granting concessions to Chinese and Russian firms and no bid deals are not to be considered.. There are other reports that the government of Iran has been pressuring the Iraqis to deny access to major U.S. oil companies.


It is said that many of the approved bidders are reluctant to sign deals until the Iraqi parliament approves a petroleum law governing the contracts. The United States has been striving to have a law written by U.S. interests approved for more than two years, such law being one of the metrics in measuring the success of the troop surge initiated by George W. Bush and backed by Republican presidential candidate John S. McCain. However, Shahristani does not expect the law to be approved in the near future due to differences among parliamentary blocs. The deal with CNPC is to be governed by laws that are already on the books.

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This is the first deal finalized by the Iraqi Oil Ministry, but the government of the semi- autonomous region of Kurdistan has been bumping heads with Baghdad by inking a whole series of deals independent of the central government.


These deals include an agreement with Hunt Oil of Dallas, Texas, a firm with close ties to U.S. President George W. Bush. There is a deal with a subsidiary of Aspect Energy of Denver, which was negotiated with the help of Republican Senate candidate, Bob Schaffer. A deal has been struck with Heritage Oil of Canada and another with a consortium of South Korean companies headed by the Korean National Oil Company. A Lebanese construction firm, Make Oil, has also contracted to build a three billion dollar oil refinery in Dhouk, Kurdistan.


These independent deals have caused difficulty between the government of Kurdistan, the Iraqi central government in Baghdad and the U.S. State Department, and it is another roadblock to the passage of an oil law in the Iraqi Parliament.


Current Iraqi oil production is between 2.3 and 2.5 million barrels per day on the world’s second or third (depending on who is estimating) largest proven reserves of 115 billion barrels.


For further reading, see:

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