Baghdad has signed the last of the 11 oil field development licenses it launched in 2009 after the Missan oil field deal was ratified by the Iraqi cabinet.
The China National Offshore Oil Corporation (CNOOC) led consortium won the contract in March after it accepted a fee of $2.30 a barrel to increase production from 100,000 barrels a day to 450,000 barrels a day within six years.
Since then, however, China’s Sinochem International withdrew from the consortium, and has been replaced by state-owned energy firm Turkish Petroleum (TPAO) on 12 May following the deals ratification. Sinochem did not disclose a reason for its departure.
CNOOC will hold a 60 per cent stake in the venture, while a state-owned oil company will hold 25 per cent and TPAO the remaining 15 per cent. The companies will pay a signing on fee of $300m (MEED 9:3:10).
The Missan area near the border with Iran contains three fields; Abu Ghirab, Fauqi and Buzurgan with total reserves of 2.5 billion barrels.
The 2.5 billion barrel field was originally auctioned in Iraq’s first bid round in June 2009, but received only one bid from the CNOOC and Sinochem consortium. The bid, which sought a remuneration of $21.40 a barrel was rejected as it far exceeded the $2.30 a barrel maximum set by the Ministry of Oil.
A state-owned oil company was expected to take over development of the field in the absence of an international oil company.
Despite the loss of Sinochem, China remains the largest single investor in Iraq’s oil and gas sector. Chinese companies will pay a hefty $500m in signing on fees alone as they develop 24 billion barrels in known reserves across the country.
China is not only important to Iraq as an investor. The CNOOC led deal at Missan has also been widely seen as a remedy to misgivings over potential Iranian interference.
Areas on the outskirts of the Fauqi field were embroiled in a border dispute in December when they were occupied by Iranian forces. With a Chinese company now set to operate in the area, a repeat is unlikely. Tehran has become increasingly reliant on Chinese companies for technology and investment in their own sector.
As energy hungry as China is, Sinochem’s sudden decision to pull out shows that it is not completely averse to risk. “It seems the state’s exposure to Iraq risk was high enough already with their investments in the Rumaila and Halfaya fields”, says one Iraq-based source.
CNOOC itself has little experience in onshore operations, particularly in the Middle East with none in Iraq. In TPAO, the consortium has a company, which has worked in Iraq and the semi-autonomous Kurdish region for many years.
TPA0 also holds a 10 per cent stake in the Badrah consortium led by Russia’s Gazprom, along with South Korea’s Kogas and Malaysia’s Petronas. The field lies 160 kilometres southeast of Baghdad and contains an estimated 0.15 billion barrels of oil. The consortium agreed to a remuneration fee of $5.50 a barrel over the agreed plateau level of 170,000 barrels a day (b/d).
The selection of TPAO as a replacement therefore offers CNOOC greater benefits than Sinochem, which as petrochemicals producer, is considered the smallest of China’s upstream outfits, with the least overseas experience, explains the source.