Chinese Cos Expected to Close on Iraqi Oil Deal - Officials

(Dow Jones), Mar. 4, 2010

A consortium led by Cnooc Ltd., the Hong Kong-listed unit of China National Offshore Oil Corp, is expected to be awarded Iraq's 2.5 billion-barrel Missan oil-field complex in southern Iraq after agreeing to Iraqi government proposals, officials said Thursday.

The Iraqi Oil Ministry has concluded talks with Cnooc and its partner, Sinochem International Corp., relating to the development of the three Missan fields and has submitted a draft contract to the cabinet for final approval, one official familiar with the talks told Dow Jones Newswires.

The Cnooc/Sinochem alliance made an unsuccessful bid for the complex in the country's first licensing auction in June last year. The two Chinese state-run firms initially offered a remuneration fee of $21.40 for each extra barrel of oil produced and suggested raising production from the Fakka, Buzurgan and Abu Ghirab fields to 450,000 barrels a day. They subsequently lowered the fee to $18.09 a barrel, but that was still much higher than Baghdad's proposed fee of $2.30 a barrel.

"They have accepted the ministry's proposed fee," Oil Ministry spokesman Assem Jihad told Dow Jones Newswires.

Iraq has set a minimum production plateau target of 275,000 barrels a day from the fields, which are producing 100,000 barrels a day.

Cnooc will hold a 60% stake in the venture; Sinochem will own 15% and an Iraqi state company will hold the remaining 25%

If awarded, Missan would bring to 11 the number of deals signed with international companies from the first and second bidding rounds held last year.

It would also make the Chinese oil companies the dominant foreign players in Iraq's promising oil sector, following three big development deals they signed this year and last year, including the one for the supergiant Rumaila oil field in partnership with BP PLC (BP).

The Chinese were the only companies that bid last year for Missan oil fields because other companies were discouraged from bidding for the fields because some of them are in a disputed area near the border with Iran.

In December, Iranian troops occupied an Iraqi well in the Fakka field bordering Iran and caused a political and diplomatic row between the two countries. Last month the Baghdad government said that Iran withdrew its troops from the field but wanted negotiations to demarcate the borders.

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