By staff reporter Zhao Jianfei and intern reporter Yu Min 

Eleven years ago, Iraq’s then-minister of oil met the president of China National Petroleum and Natural Gas Corp. (CNPC) in Baghdad to form a joint venture and sign an agreement to pump billions of barrels from the al-Ahdab oil field. 

The minister, Amir Muhammad Rasheed, later announced the deal to the media. “The contract can start tomorrow,” he said with a smile. 

His prediction was premature. Iraq plunged into a period of bloody conflict, and the oil deal stalled. Amir was later hunted by U.S. troops after his boss, Saddam Hussein, was toppled in 2003.  

But now, Iraqi and Chinese officials are meeting again and brushing the dust off their old oil agreement. 

Iraq’s current oil minister, Hussain al-Shahristani, told Caijing in late June that a new agreement with China’s Oasis Oil – a partnership formed by CNPC’s PetroChina subsidiary and China North Industries Corp. (NORINCO) -- would be signed within a month. The parties are now locked in detailed negotiations. 

Although still wracked by violence, U.S.-occupied Iraq is encouraging foreign investment in its oil resources. The Chinese are being offered stakes in al-Ahdab as well as the Haifaya oil field, which have combined reserves of about 6 billion barrels. 

Iraqi President Jalal Talabani visited Beijing in early June. He was accompanied by 40 officials, including al-Shahristani, during a weeklong state visit. His primary goal was to revive the al-Ahdab negotiations.  

“The (old) agreement has not been cancelled, though it needs some fixing,” al-Shahristani said. “After settling the technological specifications, we’ll discuss the contractual and commercial terms to make sure they are in line with our soon-to-be-established regulations on oil.” 

The Iraqi delegation asked the Chinese to adopt the latest technologies in extracting oil from al-Ahdab. 

Indeed, Al-Shahristani told Caijing that the entire scope of the investment has been altered to reflect changes in regulations and the oil market over the past decade. 

Moreover, the oil minister said Chinese and other foreign companies are welcome to compete for other projects in al-Ahdab as well as other oil fields. 

A source told Caijing the Iraqi government was under intense pressure in 1996 during the original discussions with Chinese companies about opening al-Ahdab. The heat was on for Iraq to form oil joint ventures with the Chinese to settle large debts to NORINCO dating from its 1980-’88 war with Iran, which crippled Iraq’s economy. 

Joint-venture discussions started in 1994. NORINCO’s specialty was not oil, so it partnered with CNPC to invest in Iraq. The arrangement fit the strategy for CNPC, which at the time was struggling to break into Iraq’s oil industry. 

NORINCO and CNPC evenly split the cost of the venture and formed Oasis, with the specific goal of tapping al-Ahdab. The field’s 1 billion barrels of reserves had been discovered in 1979 in Iraq’s south-central region. Iraq’s parliament approved the agreement with China in November 1995. 

According to the agreement, China would invest up to US＄ 1.3 billion to develop al-Ahdab. The goal was to produce 90,000 barrels a day for 23 years. 

Amir said the agreement would allow the extraction of about half of al-Ahdab’s reserves. The terms also called for Iraq to split the revenues with China, receiving about US＄ 400 million a year. 

Now China has set its sights much higher. The source told Caijing that China’s current goal is to extract 5 million barrels a year from al-Ahdab – about 10 percent of the total pumped from China’s Da Qing oil field, the country’s largest. 

PetroChina and Iraq also have discussed developing Haifaya, which was found in the 1970s in southern Iraq and contains an estimated 5 billion barrels. This proposed venture, aimed at extracting up to 250,000 barrels a day, also would include NORINCO. However, a source close to the deal said negotiations are still at an early stage. 

China has relied on oil imports since 1993, and has been waiting almost as long for the United Nations to lift sanctions on doing business with Iraq.  

Immediately after the U.S. overthrew Hussein’s government in 2003, PetroChina reopened its office in Iraq. At the same time, the U.N. lifted its 13-year-old sanctions against the Baghdad government. However, the U.S.-installed chief of Iraq’s oil fields, Thamir Ghadhban, told the media that the China deal for al-Ahdab was void. 

The winds changed after an Iraqi election in August 2006, when Al-Shahristani was hired to manage the oil fields. At the time, Iraq was producing only 2.5 million barrels a day. About 15,300 barrels were shipped to China every day, comprising less than 1 percent of China’s oil imports. 

Al-Shahristani announced plans to pump 6 million barrels a day by 2012, but he said meeting that goal would require a US＄ 20 billion investment. Meanwhile, China’s oil strategy called for importing 1.6 million barrels a day by 2010. 

Iraqi oil fields were on the agenda for al-Shahristani’s visits to China, Australia and Japan last October. He then announced the resumption of the al-Ahdab talks, noting that Chinese investment was welcome in Iraq but only under a renegotiated contract tied to Iraq’s new regulations. 

PetroChina representatives followed up with a visit to Iraq in March, when the al-Ahdab negotiations formally resumed. Meanwhile, the Iraqi government passed legislation encouraging development of Iraq’s oil fields, including al-Ahdab, and supporting a national oil company. 

A spokesman for Iraq’s oil ministry, Assem Jihad, said China is being urged to use technology at al-Ahdab that is more advanced than planned under the previous agreement, which had no technological requirements for drilling oil. Specifically, Iraq does not want the Chinese to use vertical drilling techniques. 

In May, al-Shahristani repeated the calls for new technology while discussing the proposed Iraq-China deal at the Asian Natural Resource Roundtable Discussions. 

An Oasis representative said the Iraqis want to get oil deals under way as soon as possible. However, the representative said, Iraq’s technological requirements will affect the investment cost. 

China is not the only country partnering with Iraq for oil. European, Asian, Arab and American companies are also interested. 

Petrovietnam and Syrian Petroleum Co. have signed agreements with Iraq for the Amara and Nur oil fields. Indonesian, Russian and Indian oil companies also have deals in Iraq. 

Other companies looking to invest in Iraq’s oil fields will be watching as Oasis concludes the al-Ahdab agreement. But a more critical issue for investors looking toward Iraq is the precarious security situation in the war-torn country.