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Iraq, China Agree to Revive Saddam Hussein-Era Oil Deal

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Iraq, China Agree to Revive Saddam Hussein-Era Oil Deal

By GINA CHON
August 28, 2008 11:27 a.m.

BAGHDAD — China clinched a deal to develop an oil field in southeastern Iraq, marking the first major oil contract here with a foreign company since the 2003 U.S.-led invasion.

The agreement, which revives a deal first struck between Beijing and the Saddam Hussein regime, calls for an estimated investment of some $3 billion. But the development agreement is a limited, technical-service contract, far less lucrative than the accord originally envisioned in a 1997 deal between Baghdad and the China National Petroleum Co.

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ALI YUSSEF/AFP/Getty Images
Iraq is home to vast reserves of oil but its industry is starved of investment and technical expertise.

Legislation that would govern bigger foreign deals is bogged down in Parliament, and separate negotiations between Baghdad and a handful of Western firms for other technical deals have faltered. That makes the Chinese deal the most significant foreign investment commitment in Iraq’s vast but creaking oil industry in years.

The contract is to develop the al-Ahdab oil field in Wasit Province. It extends for 20 years after production begins, envisioned in three years, according to an Iraqi Oil Ministry spokesman in Baghdad. The agreement sees oil production in the field climbing to some 110,000 barrels per day. The oil produced from the field will mainly be used to supply a planned power station.

Big oil firms have scrambled to establish a beachhead in Iraq, home to vast reserves but starved of oil-field investment and technical expertise. But oil and politics in Iraq are deeply intertwined, and foreign participation in the industry is highly contentious.

Negotiations over a handful of other technical-service deals between Western firms and Baghdad recently faltered. Such deals are essentially consulting contracts, in which the companies are paid fees for their work, instead of sharing in profits.

“The deal with China was based on an old contract so that was easier to complete because we didn’t have to start from scratch,” the Oil Ministry spokesman said.

Oil Ministry officials had said they hoped to sign contracts with Western companies by the end of June. Now, those talks — with major oil companies such as Royal Dutch Shell PLC, BP PLC and Exxon Mobil Corp.– are unlikely to go through, the oil ministry said. Spokesmen for the companies say they are still interested in pursuing opportunities in Iraq and declined to comment on specific negotiations.

The Oil Ministry has announced that 35 companies, including BP, Exxon Mobil and others, had made the first round of bidding for separate, longer-term service contracts that the ministry hopes to award next year.

Separately, Kurdish officials have agreed to a number of foreign deals in their semi-autonomous northern enclave.

Write to Gina Chon at [email protected]

http://online.wsj.com/article/SB121990403465579209.html

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