CNPC opens Iraqi oilfield (06/28/2011)

BEIJING - China National Petroleum Corp (CNPC), the nation´s biggest oil company by output, said that the first phase of the Al-Ahdab oilfield in Iraq with an annual capacity of 3 million tons started operations on June 21.

The project marks "significant progress" in CNPC´s construction of key oil and gas cooperative areas in the Middle East, Jiang Jiemin, general manager of CNPC, said in a statement posted on the company´s website on Monday.

The oilfield, located 180 kilometers southeast of Baghdad, is the first major oil project to begin operation in Iraq for more than 20 years.

Al-Ahdab is expected to produce 25,000 barrels of oil a day in the first three years and 115,000 barrels a day in six years as stipulated in the contract, according to the company.

The oilfield, in south-central Iraq, was discovered in 1979 and has estimated reserves of 1 billion barrels.

The deal was initially signed with the government of Saddam Hussein in 1996 but was postponed after the United Nations imposed sanctions on the war-ravaged state and the subsequent invasion led by the United States in 2003.

CNPC finally signed the agreement under a technical service contract scheme, instead of the original production-sharing agreement, with Iraq´s Ministry of Oil in November 2008 after protracted negotiations, allowing CNPC to develop the Al-Ahdab oilfield for the next 23 years.

The State-owned company´s investment to develop and explore the oilfield is about $3 billion.

The adjusted contract, in which CNPC will receive a fixed fee for a barrel of oil instead of gaining an equity stake, as it would have done under the previous regime, would reduce CNPC´s profits, in particular in an era of high oil prices, said He Wei, a senior analyst at Hong Kong-headquartered brokerage BOCOM International Co.

But he pointed out, "the oilfield is the biggest project for CNPC as a major operator in the oil-rich Middle East, which brought other qualified Chinese companies to participate in the big overseas projects.

Beijing-based Zhenghua Oil Co also signed a service contract to work in the Al-Ahdab oil field for 23 years.

CNPC´s Jiang said the company will optimize its overseas structure and distribution of its foreign oil and gas assets against a background of the risks and challenges that arise when "going overseas", according to a statement posted on the company´s website also on Monday.

CNPC´s listed arm PetroChina announced on June 21 that it failed to reach an agreement for a C$5.4 billion ($5.46 billion) deal with Canada´s Encana Corp to jointly develop a natural gas project in the North American country.