05 March 2010 (Wall Street Journal)
A consortium led by Cnooc Ltd., the Hong Kong-listed unit of China National Offshore Oil Corp., is the frontrunner to win the right to develop Iraq’s 2.5 billion-barrel Missan oil-field complex after agreeing to Iraqi government proposals, officials said Thursday.
The Iraqi Oil Ministry has concluded talks with Cnooc and its partner, Sinochem International Corp., relating to the development of the three Missan fields in southern Iraq and has submitted a draft contract to the cabinet for final approval, said one official familiar with the talks.
Cnooc officials couldn’t be reached for comment.
An agreement would further cement China’s strong role in developing Iraq’s oil fields. Cnooc’s rival China National Petroleum Corp. has been the dominant player there, finalizing an agreement in November as part of a consortium including BP PLC to develop southern Iraq’s giant Rumaila oil field, and clinching a $3 billion deal in 2008 for the Ahdeb field in Wasit province in southeastern Iraq.
China’s state-owned oil companies have been heavily investing overseas in recent years, albeit with mixed success, in an effort to ensure adequate supplies of fuel for the country’s booming economy.
If the Cnooc-led consortium wins the right to develop the fields, they would have to pay a recoverable signature bonus of $300 million, according to Iraq oil ministry’s tender protocol.
The Cnooc/Sinochem alliance made an unsuccessful bid for the complex in the country’s first licensing auction in June. The two Chinese state-run companies initially offered to receive a remuneration fee of $21.40 for each extra barrel of oil produced and suggested raising production from the Fakka, Buzurgan and Abu Ghirab fields to 450,000 barrels a day.
They subsequently lowered the fee to $18.09 a barrel, but that was still much higher than Baghdad’s proposed fee of $2.30 a barrel, which the Chinese companies have now agreed to. “They have accepted the ministry’s proposed fee,” said Oil Ministry spokesman Assem Jihad.
Cnooc would hold a 60% stake in the venture; Sinochem will own 15% and an Iraqi state company will hold the remaining 25%, according to the ministry.
Iraq has set a minimum production plateau target of 275,000 barrels a day from the Missan fields, which are producing 100,000 barrels a day. If awarded, Missan would bring to 11 the number of deals signed with international companies from the first and second bidding rounds held last year.
The Chinese firms were the only companies that bid last year for Missan oil fields. Other companies were discouraged from bidding for the fields because some of them are in a disputed area near the border with Iran.
In December, Iranian troops occupied an Iraqi well in the Fakka field bordering Iran and caused a political and diplomatic row between the two countries. Last month the Baghdad government said that Iran withdrew its troops from the field but wanted negotiations to demarcate the borders.