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November 4, 2009

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CNPC joins big venture for Iraqi oil

IRAQ yesterday finalized a deal with a Chinese-British consortium to develop its biggest oil field, a deal marking a milestone moment in the OPEC nation's push to lure foreign investors sorely needed to revamp its battered oil sector.

The 20-year contract signed by Iraqi Oil Minister Hussain al-Shahristani and executives from the China National Petroleum Corp and British oil giant BP Plc gives the two companies development rights to the 17.8 billion barrel Rumaila field in Iraq, home to the world's third-largest proven oil reserves.

Iraq has been struggling to attract foreign firms whose cash and expertise is badly needed to rebuild an oil sector where the effect of years of sanctions and neglect have only been amplified by sabotage and violence following the 2003 United States-led invasion to topple Saddam Hussein.

Al-Shahristani said the contracts, such as the one signed yesterday as well as others in development, were a significant step forward for a country that had previously used its oil wealth as a way to boost its military.

"With these contracts Iraq has begun a new period of construction," he said. "With this great step, we will attract big companies and investors in Iraq."

Rumaila - located in the oil rich south - was the only one awarded in the June licensing round, where a total of eight oil and two gas fields were on offer. The poor showing in the auction - the first such event to be held in Iraq in over 30 years - was a blow to officials in the country where oil accounts for about 95 percent of Iraq's revenues.

Since the 2003 invasion, Iraq has been struggling to boost output, which currently stands at about 2.4 million barrels a day.

Developing fields like Rumaila is crucial to raising overall output for Iraq.

CNPC and BP are targeting output of 2.85 million barrels a day from the field from the current 1 million barrel a day output. For their efforts, they will be paid US$2 per barrel of crude they produce during the 20 year contract, which can be extended by another five years.

Under the terms of the Rumaila deal, BP will hold 38 percent stake in the venture to CNPC's 37 percent. The rest is held by Iraq's State Oil Marketing Organization.

The deal is the second which CNPC has reached in Iraq since the invasion. CNPC last year struck a US$3 billion deal to develop the al-Ahdab oil field in southern Iraq.


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