Shell, China Firms Eye Iraq Oil

THE WALL STREET JOURNAL

APRIL 14, 2009

SHANGHAI — Royal Dutch Shell PLC is in advanced talks with China’s two biggest state-owned oil companies on a possible joint bid to develop the Kirkuk oil field in northern Iraq, a person familiar with the situation said.

Shell, China National Petroleum Corp. and China Petrochemical Corp. have yet to decide on their stakes in the venture, this person said. Shell offered CNPC a 15% stake, but CNPC has sought around 20%, the person said. CNPC is the parent of PetroChina Co., shares of which trade in Hong Kong.

The stake offered China Petrochemical was unclear. The company, known as Sinopec Group, is the parent of China Petroleum & Chemical Corp., which trades in Hong Kong.

A spokeswoman for Shell China declined to comment. CNPC and Sinopec couldn’t be reached.

By taking along CNPC in Iraq’s first postwar bidding to develop its huge oil and gas fields, Shell hopes to win CNPC’s blessing for a contract on the Jinqiu gas field in China’s southwestern Sichuan province, the person familiar with the situation said. Shell already has a joint venture with PetroChina on the Changbei natural-gas field in northwestern China, which pumped 10 million cubic meters of gas a day as of last September. Shell also has said it wants to increase its involvement in China’s refining sector.

A joint bid in Iraq would mark China’s latest effort to tap Iraq’s rich energy resources. CNPC in November signed a $3 billion oil-service contract with the Iraqi Oil Ministry to develop the Ahdab oil field in central Iraq.

The deal, which revived an agreement signed with the ousted regime of Saddam Hussein and wasn’t subject to bidding, made CNPC the first foreign oil firm to enter an oil-investment investment deal with the Iraqi government since the 2003 U.S.-led invasion.

Chinese oil giants have a shorter history than their international rivals in foreign oil and gas operations and are eager to gain ground.

Under Iraqi Oil Ministry guidelines, foreign oil companies will be entitled to a 75% stake in joint ventures, while state-owned Iraqi operators will hold the rest. Successful bidders would receive fees and a portion of the oil produced.

Eight oil and gas fields, including Kirkuk, were available in the first bidding round. A second round was announced at the end of December, naming 11 fields that would be opened for bidding. Iraq’s Oil Ministry last month picked nine companies, but none from China, to compete in the second round.

Baghdad hopes contracts for the fields will help boost Iraq’s crude-output capacity to 4.5 million barrels a day by 2012 from 2.4 million barrels a day now.

—Jing Yang

WSJ ARTICLE

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