Iraq Bans Sinopec from 2nd Licensing Round

BAGHDAD (Dow Jones), Sept. 29, 2009

Iraq has decided to ban China Petroleum & Chemical Corp. (SNP), or Sinopec, from its second oil and gas bidding round because the Chinese state firm has yet to abandon a contract in Iraq's northern Kurdistan region inherited from its purchase of Addax Petroleum Corp. (AXC.T), Iraq's Deputy Oil Minister Abdul Kareem al-Leaby told Dow Jones Newswires Wednesday.

"I think yes," Leaby said when asked if his ministry would bar Sinopec from taking part in the country's second licensing auction expected to take place later this year.

Deputy head of the ministry's petroleum contracts and licensing directorate, in charge of Iraq's bidding rounds, confirmed that the ministry has blacklisted Sinopec.

"Sinopec is blacklisted unless it changes its position and withdraw from these (Kurdish) contracts," Abdul Manhdy al-Ameedi told Dow Jones Newswires.

Sinopec in a reply letter to the ministry said that "it would correct its position" but their answer isn't convincing enough to the ministry, he said. By acquiring contracts in Kurdistan region which are not approved by the federal government in Baghdad, the company has violated the ministry's laws, he added.

Huang Wensheng, spokesman of parent company China Petrochemical Corp., also known as Sinopec Group, said Wednesday he had no knowledge of the oil round development.

Meanwhile, an Iraqi oil official said the ministry had sent a letter to Sinopec earlier this month warning if the company doesn't abandon the Kurdish contract, it would be blacklisted.

"We still hope that Sinopec would give up its Kurdish contract," the official said.

He said the ministry would hold a workshop Oct. 18-19 in Istanbul to discuss the second bidding round, which offers some 15 oil and gas fields, including some of Iraq's largest. It is likely Sinopec would be prevented from taking part in that meeting, he said.

Addax signed a contract with the semi-autonomous Kurdistan Regional Government in northern Iraq, which has angered the central government in Baghdad. The central government says such contracts aren't valid because they haven't been approved by the Baghdad government.

However, the Kurds say the deals are legal and in line with the country's new constitution.

Sinopec is one of 45 international oil companies prequalified by the ministry to bid for developing the country's vast oil fields.

"We have canceled Sinopec prequalification," Ameedi said.

The ministry official said most of the 45, including the world's oil majors, have bought data packages prepared by the Oil Ministry on the oil and gas fields listed in the second bidding round.

Exclusion from the Iraq bidding process would represent a fresh setback to China's ambitions to buy up overseas oil assets. In particular, China is facing opposition in some African countries over oil acquisitions due to its social and technical track record.

However, Chinese companies have had recent success elsewhere. China Investment Corp., China's country's sovereign wealth fund, said Wednesday it paid $939 million for a stake in Kazakh oil and gas company KazMunaiGas Exploration Production (RDGZ.KZ).  

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