Shell, China Oil Cos May Make Joint Bid for Iraqi Oil Field

SHANGHAI (Dow Jones Newswires), Apr. 13, 2009

Royal Dutch Shell PLC is in advanced talks with China's two biggest state-owned oil companies on a possible joint bid to develop the Kirkuk oil field in northern Iraq, a person familiar with the situation said.

Shell, China National Petroleum Corp., the parent of Hong Kong-listed PetroChina Co., and China Petrochemical Corp., the parent of China Petroleum & Chemical Corp., have yet to decide on equity stakes in the consortium, said the person, declining to be named.

Shell had offered CNPC a 15% stake, but CNPC has sought more - around 20% - he added. Stakes that Sinopec Group had been offered are unclear.

In return for taking CNPC along in Iraq's landmark first postwar bidding for development service contracts in its huge and under-developed oil and gas fields, Shell hopes to win CNPC's blessing for a production sharing contract for the Jinqiu gas field in China's southwestern Sichuan province, the person added.

The joint bid, if finalized, would mark China's latest efforts to tap Iraq's rich energy resources, after CNPC became the first foreign oil firm to enter into an investment deal with the new Iraqi government in its domestic oil industry since the 2003 U.S.-led invasion.

"We do not comment on market speculations," said Li Lusha, Shell China's spokeswoman, when asked about the talks.

CNPC's spokesman and Sinopec Group's general office weren't immediately available for comment.

In November last year, CNPC officially signed a $3 billion oil service contract with the Iraqi oil ministry to develop the Ahdab oil field in central Iraq.

The deal was only a revival of an agreement signed with the ousted regime of Saddam Hussein and not one won in a commercial bidding.

Chinese oil giants, including CNPC and Sinopec Group, have a relatively short history compared with their international peers in overseas oil and gas field bidding and operations and are keen to build up experience.

According to the semi-official version of the model contract that the Iraqi Oil Ministry sent to international oil firms in mid-March for the bidding round, oil firms will be entitled to a 75% stake in the joint ventures, while state-owned Iraqi operators at the fields will hold the rest.

The successful international companies would receive remuneration in kind for each produced barrel as well as cost fees under those service contracts. A total of eight oil and gas fields, including Kirkuk, were available in the first bidding round.

A second bidding round was announced at the end of December, naming 11 fields that would be opened for bidding for development service contracts. No Chinese companies were mentioned by Iraq's Oil Ministry, which picked nine companies last month to compete in the second round.

Baghdad hopes contracts for the fields will help boost Iraq's crude output capacity to 4.5 million barrels a day by 2012 from 2.4 million barrels a day now.

However, China's oil majors won't get a free ride for gaining precious experience in global exploration, as that country's massive domestic energy products market is also being closely eyed by international counterparts.

China's efforts to boost the percentage of natural gas in its energy mix has attracted the interest of foreign energy majors seeking access to its natural gas assets, particularly in regions with potentially rich reserves such as Sichuan.

China wants natural gas to account for around 10% of its energy portfolio by 2020, compared with less than 3.5% currently.

Shell already has a joint venture with PetroChina that operates the Changbei natural gas field in northwestern China, which was pumping 10 million cubic meters of gas per day as of September last year.

Shell also wants to increase its involvement in China's refining sector, and aims to complete a feasibility study of a joint venture refinery and petrochemical complex with PetroChina and the international arm of Qatar Petroleum by the end of this year, Lim Haw-Kuang, the executive chairman of Shell Companies in China, said in late March.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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