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China Nabs Gold In Iraq Oil Race Forbes
Tina Wang, 08.28.08, 6:40 PM ET
In the race among global oil majors to re-enter Iraq, China scored the first win.

While Western oil firms have been trying to access the world’s third-largest oil reserves since the 2003 U.S. invasion, state-run China National Petroleum Corp. secured the post-Saddam government’s first major oil contract. The $3 billion oil services deal, signed Wednesday, revised the terms of a 1997 agreement to pump oil from the Adhab oil field. The contract replaces a production-sharing arrangement with set-fee technical services.

The field will start pumping in 2011, at a target output of 110,000 barrels per day, and operate for 20 years, Iraq’s oil minister Hussain al-Shahristani said.

The deal was unusual as the current Iraqi government has repudiated “virtually” all other Saddam-era oil arrangements, said Mark Gilman, an analyst for the Benchmark Co. Gilman said that visits between senior Chinese and Iraqi officials prior to the deal’s inking may have helped facilitate the uncommon deal, and revealed the contract’s “heavily political overtones.”

Negotiations with foreign oil giants have been protracted as the Iraqi government continued to squabble over the establishment of a new oil law. Without this, it is difficult for Iraq to sign any equity arrangements, which are more lucrative for foreign firms than technical services contracts, according to Bilman.

Iraq’s oil minister also said that Western firms looked less likely to secure short-term services contracts, as the government planned to enter long-term contracts by mid-2009. The administration has gone “back and forth” numerous times on handing out short-term contracts to the oil majors, Bilman said. Royal Dutch Shell, BHP Billiton, Exxon Mobil, Chevron and Total are also all furiously clamoring for long-term contracts to go back into Iraq’s oil fields. Al-Shahristani said the government would use current law until a new one is agreed upon.

China National Petroleum Corp., which owns refiner PetroChina, will hold a 75% stake in the joint venture, with Iraq’s Northern Oil company owning 25%. Both Beijing and Baghdad need to ratify the deal.

After trading in Hong Kong, China National Petroleum Corp. shares closed up 5 Hong Kong cents (0.6 cent), or 1.61%, to 3.15 Hong Kong dollars (40 cents).