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Rumaila deal key to CNPC goals

By Wan Zhihong (China Daily)
Updated: 2009-11-05 08:44

CNPC President Jiang Jiemin (left), BP's chief executive Tony Hayward (center), and Dhiya Jaafar, acting chief of Iraq's South Oil Company (right) shake hands during the signing ceremony in Baghdad, on Tuesday. [Agencies]

China National Petroleum Corp (CNPC) and British oil major BP on Tuesday signed a technical service contract with Iraq's state-owned South Oil Company to expand production from the Rumaila oilfield, the country's first major oil deal since the US invasion in 2003.

The deal is the biggest investment by CNPC in Iraq and offers the domestic oil major an unprecedented opportunity to enter the oil rich country, analysts said yesterday.

"With the deal, we have made a major move in entering the oil rich country," a CNPC executive told China Daily yesterday. He said Iraq would play a strategic role in the company's future overseas development plans.

"Although we will face some safety risks in Iraq, gaining a foothold in the country will offer us great opportunities in the future," he said, declining to be named.

Compared to domestic oil fields such as Daqing, the Rumaila field is much bigger and easier to develop. Having a stake in such projects will further enhance China's energy security, he added.

The consortium is led by BP, which holds a 38-percent stake in the project. CNPC holds 37 percent and the Iraq government's representative, State Oil Marketing Organization, holds 25 percent. The consortium has agreed to nearly triple the Rumaila field's output to almost 3 million barrels of oil per day (bpd), which would make it the world's second-largest producing oilfield.

BP and CNPC plan to invest approximately $15 billion in cash over the 20-year lifetime of the contract with the intention of increasing plateau production to 2.85 million bpd in the second half of the next decade. Once production has been raised by 10 percent from its current level of about 1 million bpd, costs will start to be recovered, and fees of $2 a barrel earned on the incremental oil production, BP said.

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The deal follows CNPC-BP's successful bid for the Rumaila oil field in Baghdad in June. Rumaila was the only one out of six oil fields and two gas fields on offer that was successfully auctioned off in Iraq's first tender of development contracts in June.

Development of the oilfield is part of Iraq's intention to rebuild its oil industry, which has been badly hurt during the US invasion.

However, the deal faces huge political risk, as there is no guarantee the next government following an election in January will honor them, and Iraq is still racked by political violence.

"No matter how hard it would be, entering the Middle East is of great importance to China's energy security," said Lin Boqiang, a professor at Xiamen University.

CNPC's previous experience in Iraq would also help its work on Rumaila, he said.

CNPC signed an agreement in 2008 to help Iraqi partners develop the Al-Ahdab oilfield, 180 km southeast of Baghdad. The deal was worth $2.9 billion.