CNOOC, Sinochem Sign Initial Agreement with Iraqi Oil Ministry

(Dow Jones), Mar. 8, 2010

A consortium led by Cnooc Ltd. (CEO), the Hong Kong-listed unit of China National Offshore Oil Corp., has signed an initial agreement with Iraq to develop the 2.5 billion-barrel Missan oil field complex in southern Iraq, a senior Iraqi oil ministry official said Monday.

Sabah Abdul Kadhem Al Saadi, director of the legal and commercial office at the Oil Ministry's Petroleum Contracts and Licensing Directorate, told Dow Jones Newswires that a final deal could be signed within days, pending approval by the Iraqi cabinet.

Cnooc and its partner, Sinochem International Corp., last week agreed to the Iraqi oil ministry's proposals to develop the three Missan fields--Fakka, Buzurgan and Abu Ghirab.

The Cnooc/Sinochem alliance made an unsuccessful bid for the complex in the country's first licensing auction in June. 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 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.

Cnooc will hold a 60% stake in the venture, Sinochem will own 15% with an Iraqi state company holding the remaining 25%, according to the Iraqi oil ministry.

Awarding Missan brought to 11 the number of deals signed with international companies from the first and second bidding rounds held last year.

Iraq aims to boost its production from these oil fields to 12 million barrels a day in six to seven years from current 2.5 million barrels a day, officials said.

It would also make the Chinese oil companies the dominant foreign players in Iraq's promising oil sector, following four big development deals they signed in 2009 and 2010, including the one for the supergiant Rumaila oil field in partnership with BP PLC (BP) and Ahdab field.

The Chinese were the only companies that bid last year for Missan oil fields after 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. Last month, the Iraqi government said Iran withdrew its troops from the field but wanted negotiations to demarcate the borders.

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