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China Reaches $3 Billion Deal To Develop Oil Field in Iraq

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China Reaches $3 Billion Deal To Develop Oil Field in Iraq

August 29, 2008; Page A10

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

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

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 the Iraqi Parliament. And separate negotiations between Baghdad and a handful of Western companies for other, technical pacts 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 a day. The oil produced from the field will mainly be used to supply a planned power station.

Big oil companies have scrambled to establish a beachhead in Iraq. 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-services deals between Western companies 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.

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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 declined to comment on specific negotiations.

Write to Gina Chon at [email protected]



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