Friday, August 29, 2008

Deal Signals Return of Foreign Firms to Iraq's Oil Fields

China National Petroleum Corp. Signs $3 Billion Agreement

Washington Post Foreign Service
Thursday, August 28, 2008; 3:51 PM

BAGHDAD, Aug. 28 -- Iraq and China signed a $3 billion deal this week to develop a major Iraqi oil field, the first major commercial oil contract here with a foreign company since the 2003 U.S.-led invasion.

The agreement calls for the state-owned China National Petroleum Corp. to begin producing 25,000 barrels of oil a day, then gradually increasing to 125,000 a day, according to Asim Jihad, a spokesman for the Iraqi Oil Ministry.

The contract revamps a deal the Chinese company had inked in 1997 with Saddam Hussein to develop an oil field in Wasit province, south of Baghdad near the Iranian border. But unlike that deal, which called for China to share in the revenues, the current contract is based on a fixed-fee structure.

The announcement of the deal comes two months after Western oil companies came close to an agreement with the Oil Ministry to return to Iraq. Those deals were for technical contracts that involved supporting production. The China agreement is a so-called service contract that is much more lucrative.

Jihad said the technical contracts, which were originally to be finalized June 30, have been postponed because of disagreements with the Western concerns, including Shell, BP, Exxon Mobil and Total.


Most of the major oil contracts are to be awarded in the next year and a half through a process with 35 companies identified by the Oil Ministry, he said.

The deal with the Chinese company came early because of the pre-existing deal before the U.S-led invasion and to rebut concerns that the U.S. government was manipulating the process to benefit American corporations, he said.

"We hope this will refute all the rumors that say the American companies are the only ones benefiting from the American occupation," he said.

The contract requires China to build a major electrical station in the area to boost Iraq's overworked power grid.

The deal still requires the approval of the Iraqi cabinet, which the Oil Ministry hopes will come as early as next week.

source: Deal Signals Return of Foreign Firms to Iraq's Oil Fields Washington Post, United States