China, Iraq reach $3 bln oil service deal

SHANGHAI, China - August 28, 2008 The deal, restoring a project canceled after the 2003 U.S.-led invasion of Iraq, was signed late Wednesday by Chinese officials and Iraqi Oil Minister Hussain al-Shahristani.

"The initial agreement has been signed, and we are waiting to see the approval of both governments," said Sarhad Fatah, a spokesman at the Iraqi Embassy in Beijing.

Fatah would not disclose the value of the deal, but an official at the Oil Ministry in Baghdad confirmed it would be worth $3 billion. He requested anonomity because the agreement hasn't been approved by the cabinet yet.

Major oil companies have been reluctant to commit to deals in Iraq because Baghdad has yet to enact a law to govern the oil industry.

The government of former Iraqi President Saddam Hussein signed a deal in 1997 with China's oil company, government-owned China National Petroleum Corp. It was to take effect once U.N. sanctions on Iraq's oil industry were lifted.

That contract, worth $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.

A CNPC spokesman, Liu Weijiang, said Thursday that he could not provide any information on the new agreement.

If it is approved, the agreement would 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.

Iraq's Oil 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, U.N. sanctions, violence and sabotage have battered its oil industry.

The Ahdab field is located in Shiite-dominated Wasit province, about 100 miles (160 kilometers) southeast of Baghdad. It has been the scene of sporadic attacks since the U.S.-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 2008, and 4.5 million barrels a day by the end of 2013.


Associated Press researcher Bonnie Cao in Beijing and Sinan Salaheddin in Baghdad contributed to this report.

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