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Iraq signs oil service deal with China

China and Iraq have signed a US$3 billion deal revising an earlier agreement for China’s biggest oil company to help develop the Ahdab oil field, a statement from the Iraqi embassy in Beijing said.

The deal, restoring a project canceled after the 2003 US-led invasion of Iraq, was signed late on Wednesday by Chinese officials and Iraqi Oil Minister Hussain al-Shahristani.

The revised terms of the deal increase the anticipated output from the billion-barrel field to 110,000 barrels per day from the originally planned 90,000 barrels per day, the statement said. The contract is to run for 20 years after production begins three years from now, it said.

Former Iraqi president Saddam Hussein’s regime defied UN sanctions that limited direct foreign dealings with Iraq’s oil industry and signed a deal in 1997 with the state-owned China National Petroleum Corp (CNPC, 中石油).

That contract, worth US$1.2 billion at the time, gave a subsidiary of the Chinese company concessions to develop the field on a production-sharing basis for 22 years. The value for the renegotiated contract is US$3 billion, the statement said.

The new agreement will be a service contract, under which China will not be a partner in profits and instead will be paid for its work.

A spokesman for CNPC, Liu Weijiang, said yesterday that he could not provide any information on the deal.

Once the contract is signed, it will be the first Saddam-era oil deal to be honored by the new Iraqi government. A number of companies say they signed deals with Saddam’s regime and demand that those be honored, or the countries involved be given priority on new agreements.

But the Iraqi statement said that some technical services contracts with other big petroleum companies might be postponed.

The ministry has consistently denied giving any advantage to companies with which Saddam signed deals, instead insisting that oil and gas fields and exploration blocks will be offered up for bids.

Iraq sits on more than 115 billion barrels of oil, but decades of wars, UN sanctions, violence and sabotage have battered its oil industry.

The Ahdab field is located in Shiite-dominated Wasit Province, about 160km southeast of Baghdad. It has been the scene of sporadic attacks since the US-led invasion in 2003.

As security improves, Iraq is trying to bring in foreign companies to help increase crude output from the current 2.5 million barrels a day to 3 million barrels a day by the end of this year, and 4.5 million barrels a day by the end of 2013.

Shares in CNPC’s publicly traded unit, PetroChina, gained 0.23 percent to 13.09 yuan (US$1.91) early yesterday.
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