CNOOC Deal for Four Nigeria Oil Blocks Hits Snags

BEIJING, Nov 2, 2006 (Dow Jones Newswires)

China National Offshore Oil Corp., the country's largest offshore operator by output, is facing a race against time to clinch a deal at this weekend's China-Africa summit that will give it the right of first refusal to four oil blocks off the coast of Nigeria.

Negotiations have hit snags over interest payments that must be shared between CNOOC and the Nigerian government on a $2.5 billion loan being offered by the Export and Import Bank of China, sources close to the situation said.

Although the loan deal is still likely to be signed when Nigerian President Olusegun Obasanjo arrives in Beijing for this weekend's summit, the wider agreement involving block awards to CNOOC may take longer to broker, according to Nigerian oil minister Edmund Daukoru.

A separate deal for China National Petroleum Corp. (CNPC.YY) to acquire four blocks in Nigeria alongside a $2 billion investment in the Kaduna refinery in the north of the country will be formally ratified by both sides at the summit, after being agreed in May following a mini-bid round.

"At the moment it looks like there will be two deals," Daukoru told Dow Jones Newswires on Tuesday before leaving Nigeria's capital Abuja for the Beijing summit.

A high-level delegation from China Exim Bank has spent the past week in Abuja trying to hammer out details of the loan deal so that it could be signed in time, a Nigeria-based source said.

Dow Jones Newswires broke the news earlier this year that CNOOC was in talks to extend its footprint in Africa by leveraging China's policy of soft loans to win preferential treatment for further oil block awards in Nigeria.

Nigeria, which has more than $2 billion of two-way trade with China annually, is due to hold a bidding round for 60 blocks in seven days' time that will be the last by the Obasanjo administration before he steps down as president next year.

At least 10 blocks in the bidding would be allocated to preferred parties with right of first refusal, including those to CNOOC if a deal is struck, according to Nigeria-based sources.

Daukoru, who is also president of Organization of Petroleum Exporting Countries, said during a three-day visit to Beijing in August that CNOOC had wanted to negotiate a deal directly rather than seeing the price determined by a market competitive process.

China, the world's second largest energy consumer, signed a memorandum of understanding with Nigeria in the spring on expanding economic cooperation between the countries.

In March, CNOOC Ltd. (CEO) bought a 35% working interest in a license to explore for oil offshore Nigeria for $60 million, and Chairman Fu Chengyu named Nigeria alongside Myanmar as the two countries where his company wanted to focus its investment in the medium term.

Two months earlier, CNOOC Ltd. had agreed to pay $2.27 billion, plus $424 million in expenses, to South Atlantic Petroleum Ltd. for a 45% working interest in the OML 130 offshore oil mining license, which mainly covers Nigeria's undeveloped Akpo field.

China has been ramping up efforts to diversify its sources of crude away from the instability-prone Middle East, focusing on countries in Africa such as Angola and Sudan where security or political risks has scared off western countries.

Copyright (c) 2006 Dow Jones & Company, Inc.