The Iraqi Cabinet has given the approval of a US$3 billion deal with China’s state-owned CNPC to develop and run the al-Ahdab oil field in the Wasir province, located 100 miles south of Baghdad.
The significance of the deal, already inked by the Chinese, is that it is the first contract to be signed by the Iraqi’s in more than 35 years that allows foreign oil companies to do business inside of its borders, an Oil Ministry official said on Saturday.
In fact it is the first Saddam-era oil deal to be honoured by the new Iraqi government. The initial deal between Iraq and the CNPC was cancelled after the 2003 US-led invasion.
Some analysts believe that the deal signals the start of worrying times for major Western oil companies jockeying for position to win other contracts to develop Iraq’s oil and gas fields and neglected hydrocarbon infrastructure.
The Oil Ministry continues to negotiate short-term, no-bid contracts with several US and European oil companies, including ExxonMobil, Royal Dutch Shell, Total SA, Chevron and BP but as of yet has failed to commit them to long-term deals.
Iraq's oil fields currently produce about 2.5 million barrels per day (bpd), 2 million of which are exported. These are close to the trading figures that Iraq was experiencing before the recent war, which toppled Saddam from power, in 2003. But, they remain below export levels seen prior to the Persian Gulf War in 1991.
Iraqi Oil Minister, Hussein Shahrastani, said in July that he is confident Iraq will be able to double its production figures over the coming five years.
The 20-year contract is set to allow the CNPC to produce around 125,000 barrels a day from the al-Ahdab oil field in the south of the country, Assim Jihad, a spokesman for the country’s Oil Ministry, said.
Although the full details are not yet released, the Chinese appear to have accepted far tougher terms over the oil field than that originally negotiated in 1997 with Saddam Hussein.
Although Iraq's Cabinet must still approve the contract, Mr. Jihad said that this would happen soon and work could start within the next few months.
It is important to note that this new contract is not a production-sharing deal. The $3 billion will cover a services fee. Much of the production will also be used to power a new 1,320 MW power station that will produce much needed energy for the Iraqi people. CNPC will also be building the power station under a separate contract.
The Chinese company will provide technical advisers, oil workers and equipment to develop the al-Ahdab oil field, in turn providing fuel for al-Zubaidiya power plant in Wasit, southeast of Baghdad and bordering with Iran.
According to estimates from the Energy Information Administration (EIA) Iraq, with an estimated 115 billion barrels, has among the largest oil reserves in the world.