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China Outbids Oil Majors in Iraq

Stocks in this article: PTR XOM RDS.A BP CEO

Since 2009, the Iraqi government has conducted two rounds of open bidding to award oil-field development rights to foreign consortia. The total potential daily output from these fields could approach 11 million barrels a day, or represent about 10% of total global production when they're fully developed, Walters estimates.

Of the development rights awarded, Chinese interests, specifically the China National Petroleum Company, (CNPC) were the leading bidder for the Rumaila and Halfaya fields, which represent almost 3.5 million barrels a day of production; or more than one-third of the total production potential from all the fields being auctioned, according to Walters.

"For global supply ... China is expanding the pie by adding product that would otherwise not be in the market today," said Luft of the Institute for the Analysis of Global Security.

Walters added that while many large, Western integrated super majors such as ExxonMobil, Shell (RDS.A) and BP (BP) were successful bidders as well, only Shell has interests in fields with as much production potential as those that CNPC has.

Other major winners in the Iraq bidding included Petronas of Malaysia, Gazprom of Russia and Lukoil of Russia. Renaissance Capital's Trajkov says recently, PetroChina may have also concluded a deal on Halfaya and Rumaila.

Since the initial awards, CNPC has increased its holdings in Iraq with, for instance, the acquisition of an additional 12% interest in the Rumaila field from BP in late 2009. CNPC also has an interest in the Ahdab field, which is the first, new Iraqi oil field to be brought on stream since the fall of the Saddam Hussein regime in March 2003.

Luft says in total, CNPC and China's Cnooc (CEO) have won at least three major deals in southern and southeastern Iraq and are also bidding for other deals.

"Personally, I find it interesting that the Chinese oil companies are already competing 'shoulder to shoulder' with the Western oil majors after coming onto the scene just in the last five to 10 years," said Platts editor Calvin Lee.

"I don't see it as part of preferential treatment by the Iraqi government, but rather a timid and risk-averse attitude by the IOCs," Luft reiterated. "They just don't want to bite more than they can swallow and need to see a more stable regulatory environment before they take a deeper plunge."

Chinese state-owned Sinopec in 2009 entered Iraqi Kurdistan through the acquisition of Addax Petroleum, but has since met obstacles investing in the rest of Iraq due to the ongoing tension between Iraqi proper and Iraqi Kurdistan.

-- Written by Andrea Tse in New York.



>To contact the writer of this article, click here: Andrea Tse.

Copyright 2011 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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