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CNOOC and Turkish Petroleum Corp. have signed a 20-year contract to develop the Missan oil-field in southern Iraq

By Chen Zhu

CNOOC Ltd., the Hong Kong-listed unit of China National Offshore Oil Corp. has partnered with the state-run Turkish Petroleum Corp. (TPAO) to win a contract with Iraq to develop the lucrative Missan oil-field in southern Iraq, marking CNOOC's first upstream access to Iraqi oil following its two major rivals, CNPC and Sinopec.

According to CNOOC, the 20-year contract includes an increase of Missan's production capacity to 450,000 barrels per day from the current 100,000 barrels a day within six years. CNOOC has agreed to price every additional barrel of oil produced after capacity rises by 10 percent at US$ 2.30.

CNOOC will be the operator and hold 63.75 percent of the interest. TPAO will have 11.25 percent interest while an Iraqi drilling company will hold the remaining 25 percent.

Located 350 kilometers southeast from Baghdad, the Missan oil-field complex includes Fakka oil field, Buzurgan oil field and Abu Ghirab oil field. The estimated reserve of the complex is 2.5 billion barrels.

The deal is still pending Iraqi government approval.

CNOOC started bidding for the Missan contract in June last year, partnering with Sinochem International Corp. The two companies proposed to increase production to 450,000 barrels a day and charge US$ 21.40 per barrel, exceeding the Iraqi government's US$ 2.30 proposal.

Last summer, the two sides held rounds of negotiations and the companies concluded to sell on the proposed price. However, Sinochem International later decided to withdraw from the deal without explanation. An industry analyst close to the company speculated that Sinochem was concerned with numerous risks associated with the deal.

Last week, Abdul Mahdy al-Ameedi, head of the Iraqi Oil Ministry's Petroleum Contracts and Licensing Directorate, announced that TPAO had joined the consortium with CNOOC.

The other two major Chinese oil companies, CNPC and Sinopec, have also gained a foothold in the Iraqi oil industry. In November 2008, CNPC and China North Industries Corp. set up a joint venture and signed a 20-year development contract for Al-Ahdab Oilfield.

In June 2009, CNPC and BP jointly won the bid for a 20-year a technical service contract of Rumaila oil field. The companies plan to see a rise in Rumaila's oil production to 2.8 million barrels per day from 1.1 million, charging US$ 2.00 per barrel.

In late 2009, CNPC setup a consortium with Total and Malaysia's Petronas to develop Halfava oil field by charging US$ 1.40 per barrel.

Sinopec made its expansion in Iraq in August 2009, through the US$ 7.24 billion purchase of the Swedish oil firm Addax, which has operations in Iraq.

( Caixin Online )

HONG KONG, 17 May 2010 - PR Newswire

CNOOC Limited is pleased to announce today that, the Company, via its wholly owned subsidiary - CNOOC International Limited, together with Turkish Petroleum Corporation (TPAO), have signed a technical service contract ("TSC") for the development and production of the Missan Oil Fields within Iraq.

The Missan Oil Fields are located in the southeast of Iraq, about 350 kilometers southeast of Baghdad.

The TSC has a contract term of 20 years and the Company has undertaken to increase the daily production of the Missan Oil Fields to 450,000 barrels within six years.

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

According to the TSC, the Company acts as the operator and holds 63.75% participating interest while TPAO holds 11.25%. Iraqi Drilling Company, a local Iraqi company, holds the remaining 25% in the project.

Mr. Fu Chengyu, Chairman and CEO of the Company welcomed the signing of the TSC and commented, "It is a great pleasure to participate in rebuilding Iraqi's oil industry together with TPAO. CNOOC Ltd and its partner will carry out an active investment plan on the development of the Missan Oil Fields, to increase the production level for the benefits of all parties."

TSC will be effective subject to a few pre-conditions including the approval from Iraq.

14 May 2010 - Dow Jones

State-run Turkish Petroleum Corp., known as TPAO, has decided to join Cnooc Ltd. the Hong Kong-listed unit of China Offshore Oil Corp. to develop Iraq's Missan oil field complex in southern Iraq, a senior Iraqi Oil Ministry official said Thursday.

"The ministry has agreed to a request submitted by TPAO to join the consortium led by Cnooc to develop Missan oil fields," Sabah Abdul Kadhem al-Saadi, head of the legal and commercial office at the ministry's Petroleum Contracts and Licensing Directorate, told Dow Jones Newswires.

A deal for Missan oil fields, with proven reserves of 2.5 billion barrels, is expected to be sealed Monday after Cnooc-led consortium agreed to the ministry's terms

A consortium led by CNOOC Ltd, the Hong Kong-listed unit of China National Offshore Oil Corp., has signed an initial agreement with Iraq to develop the 2.5 billion-barrel Missan oil field complex in southern Iraq, a senior Iraqi oil ministry official said Monday. Sabah Abdul Kadhem Al Saadi, director of the legal and commercial office at the Oil Ministry & apposes Petroleum Contracts and Licensing Directorate, told Dow Jones Newswires that a final deal could be signed within days, pending approval by the Iraqi cabinet.

CNOOC and its partner, Sinochem International Corp, last week agreed to the Iraqi oil ministry's proposals to develop the three Missan fields - Fakka, Buzurgan and Abu Ghirab. 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 firms initially offered a remuneration fee of $21.40 for each extra barrel of oil produced and suggested raising production from the 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. CNOOC will hold a 60% stake in the venture; Sinochem will own 15% with an Iraqi state company holding the remaining 25%, according to the Iraqi oil ministry.

Awarding Missan brought to 11 the number of deals signed with international companies from the first and second bidding rounds held last year. Iraq aims to boost its production from these oil fields to 12 million barrels a day in six to seven years from current 2.5 million barrels a day, officials said. It would also make the Chinese oil companies the dominant foreign players in Iraq's promising oil sector, following four big development deals they signed in 2009 and 2010, including the one for the supergiant Rumaila oil field in partnership with BP and Ahdab field.

The Chinese were the only companies that bid last year for Missan oil fields after 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. Last month, the Iraqi government said Iran withdrew its troops from the field but wanted negotiations to demarcate the borders.

According to a Wall Street Journal report, Iraqi officials said that a consortium led by China National Offshore Oil Corporation (CNOOC) is expected to win the bid for Missan oilfields in southern Iraq. The consortium had accepted the price offered by the government of Iraq. The oilfield has reserves of about 2.5 billion barrels.

An Iraqi official said, the Iraqi Oil Ministry has ended negotiations with CNOOC and its partner Sinochem International Co., Ltd. on matters relating to development of three Missan oil fields, and has submitted a draft contract to the Iraqi Cabinet, pending final approval.

Iraqi Oil Ministry spokesman said that the two Chinese companies have accepted the price offered by Ministry of Oil. Iraq has set the lowest oil production target at 275,000 barrels per day. If the Chinese companies can exceed this target, China will be granted a service charge of 2.3 U.S. dollars per barrel from the Iraqi government. The field's production is currently 100,000 barrels per day.

The report said that CNOOC winning the project successfully will further enhance China's importance in oil field development in Iraq. In 2008, China National Petroleum Corp successfully won with a bid for the first oil field development project in post-war Iraq. In November last year, China National Petroleum Corp joined BP oil and won a bid for then Iraq's largest Rumaila oil field.

( People's Daily Online )

08 March 2010 (Reuters)

Iraq has signed an initial deal with China's CNOOC and Sinochem to develop the 2.5-billion-barrel Maysan oilfield complex, Oil Minister Hussain al-Shahristani told Reuters on Sunday.

A final deal with both companies will be signed in the coming days, after they accepted the government's proposed remuneration fee of $2.30 for every additional barrel of oil produced, Shahristani said.

"The Chinese companies have accepted all our conditions for this field," he said. "We have an authorization from the cabinet to sign the final deal."

CNOOC, together with Sinochem, made an unsuccessful bid for the three Maysan fields in Iraq's first auction of oilfield contracts last year. But since then they had decided to accept the government's proposed remuneration fee of $2.30.

CNOOC and Sinochem had projected plateau output of 450,000 barrels per day (bpd) when they first made the bid last year.

The deal is one in a series of contracts with international oil companies that could boost Iraq's output capacity to 12 million barrels per day, rivaling top producer Saudi Arabia, from around 2.5 million bpd now.

The government is hoping that the deals will generate cash needed to rebuild Iraq's shattered economy after years of war, sanctions and economic decline.

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.

Iraq's Oil Ministry is negotiating with China's CNOOC (China National Offshore Oil Corporation) for a service contract for the 2.5 billion barrel Maysan oilfield complex, Iraqi oil officials said on Monday.

Oil Minister Hussain al-Shahristani said the Chinese company, which he did not identify, had accepted the government's proposed remuneration fee of $2.30 for every additional barrel of oil produced.

Another Iraqi oil official, who asked not to be identified, said the company was CNOOC, which together with Sinochem made an unsuccessful bid for Maysan's three fields in Iraq's first auction of oilfield contracts last year.

"After the big success we achieved the Chinese company returned back to us and said 'we accept your offer of $2.30'," Shahristani told al-Salam television channel.

According to Reuters, the deal could join a series of contracts that Iraq has signed in a bid to boost its output capacity in seven years to 12 million barrels per day, from around 2.5 million bpd now.

( Reuters )

It may be the start of the biggest oil job in the world. Each day, 20 workers from BP and China National Petroleum Corp. (CNPC) buckle down to the task of prepping the Rumaila oil field in southern Iraq for rapid development. In industry lingo, Rumaila is a "supergiant"—a 50-mile-long deposit of sweet crude with estimated reserves of 16 billion barrels, whose output may someday rank second only to Saudi Arabia's vast Ghawar field. The Saudis, though, have carefully managed their oil assets for decades. In contrast, Rumaila, a lightly inhabited expanse of date groves and Bedouin encampments, has not had a proper upgrade since the 1970s. The Iraqis contracted with BP and CNPC last year (BP) to juice Rumaila's production from 1.06 million barrels a day to 2.85 million, all in seven years. No one has ever tried such a ramp-up at a field as huge as this one. Putting Rumaila back in full working order will take tens of thousands of workers, 1,000 new wells, and billions in investment.

BP is the largest partner in the venture, but only by a dipstick: It has a 38% stake, while the Chinese hold 37% (the rest is owned by an Iraqi company). The media focus has been on BP's decision to take up the Rumaila challenge for a low fee of only $2 for every barrel the venture produces. But the more important story could be China's role. "CNPC's involvement brings together the country with the most rapid growth in energy demand in history with the country that plans the greatest buildup of production capacity ever," says Alex Munton, an Iraq specialist at Edinburgh-based oil consultants Wood Mackenzie.

China has moved fast. In a little over a year, CNPC, China's main oil producer with revenues of more than $188 billion and a 1.5 million-worker payroll, has won large stakes in three Iraqi oil fields. The total production target for those fields is around 3.5 million barrels per day—close to China's domestic output.

In two of the ventures, China is the controlling partner. Over two decades or so, CNPC may spend some $20 billion on the fields, the most of any oil company in Iraq since Saddam Hussein fell. For China's oil industry, "Iraq is a game-changer," says Wenrang Jiang, an authority on the country's energy thirst who teaches at Canada's University of Alberta.
TIED TO THE LEADERSHIP

Carved out of China's oil ministry in 1988, state-controlled CNPC managed the oil and gas fields of north China before expanding to Peru, Sudan (where it has been criticized for working with the regime), and Venezuela. It has a reputation as insular and bureaucratic, especially compared with China National Offshore Oil Corp. CNOOC, founded in 1982 with a mandate to drill in offshore locales with foreign companies, has executives who speak English as a matter of course and travel widely. "CNPC always viewed itself as a direct successor of the oil ministry," says Victor GAO, CNOOC's former general counsel and currently a private equity investor. "So it's more orthodox; it considers itself a government entity."

Jiang Jiemin, 54, who has run CNPC since 2004, is a man of few words. In Iraq, though, Jiang and his team played their hand well. Months before the Rumaila deal, CNPC got the rights to develop Ahdab, a medium-sized field. That means CNPC is one of a few outside oil companies with operating experience in Iraq. Jiang has also forged a good relationship with BP CEO Tony Hayward, who sees CNPC as the gateway to China. BP "wants to have them as a partner wherever they can," says Bob Maguire, head of oil and gas investment banking at Perella Weinberg Partners in London. "They are the largest NOC [national oil company] in Hayward's mind." CNPC declined to comment for this story.

BP and CNPC bring different strengths. BP has been studying the field by agreement with the Iraqis and already has worked out a development plan. And the Chinese? Beijing-based CNPC has access to affordable credit from China Development Bank and China Exim Bank. In an industry where supplies are tight, "they have spare capacity, rigs, and other equipment available that you could mobilize and put on the ground," says Andy McAuslan, BP's Iraq commercial director. (He adds that contracts for oil services in Iraq will be awarded competitively.) Fast deployment in Iraq is the key. According to their contract, BP and CNPC won't start getting paid until they have boosted production 10%. The Chinese know how to manage thousands of workers in distant, often hostile locales such as Central Asia and the Sudan. It also knows how to develop onshore fields: In China, it pumps the equivalent of 3.3 million barrels a day.

Besides the role in drilling wells and pumping oil, Chinese companies are good candidates to build the oil terminals, refineries, and pipelines Iraq will need to get its crude to global markets.

China is the low-cost provider in the industry. "As a general rule of thumb, Chinese management and labor costs are about one-third if not one-fourth of Western costs," says GAO, the ex-CNOOC executive.

Nine colleges and universities focus exclusively on oil studies in China: "The Chinese treat the industry as a life-and-death issue," says GAO. The Western oil industry's workforce is aging rapidly. "Analysts always mention that the oil majors face personnel shortages," says Xu Xiaojie, an independent oil and gas adviser in Beijing. "In China we have a surplus."

The Iraq ventures still face formidable obstacles—sectarian strife, corruption, and government instability, among them. The Iraqis also may not welcome large numbers of Chinese to their fields. "Yes, bringing in low-cost engineers is China's advantage," says Trevor Houser, a partner at the Rhodium Group, a New York-based research firm that studies India and China. "But that has created tensions [elsewhere]. Look at Zambia, where an election was pretty much fought over China."

China and CNPC, though, have no choice. The Chinese are hungry for crude and for a position among the worlds top oil companies. Iraq may prove the best place to satisfy both desires.