China’s CNOOC has announced a new agreement to explore an oil field in central Iraq, according to the company. The oil field, known as Block 7, will be managed by CNOOC Africa Holding, a fully owned subsidiary of CNOOC. The first phase of exploration is expected to take three years, as reported by Reuters.
This agreement follows CNOOC’s successful bid for Block 7 during a tender held by the Iraqi government earlier this year. In this round, Chinese energy companies emerged as the primary winners, securing four bids for a total of nine oil and gas deposits.
Chinese companies’ involvement in Iraq’s oil and gas sector stems from a 2019 agreement known as “Oil for Reconstruction and Investment.” This deal allows Chinese firms to invest in Iraq’s energy infrastructure in exchange for oil supplies.
To attract more foreign investment in its oil and gas resources, Iraq’s government has revamped its profit-sharing model for exploration and production activities. Previously, foreign investors received technical service contracts, which paid a fixed rate for each barrel extracted. However, this arrangement was not favorable for producers. They couldn’t profit from rising oil prices and had to absorb increases in production costs.
Due to these issues, some major oil companies withdrew from Iraq. In response, the Iraqi government introduced a new profit-sharing agreement. This change aimed to address the drawbacks of the previous system and attract both existing and new investors.
This shift in contract terms has already influenced major players in the industry. For example, TotalEnergies recently signed a substantial $27 billion deal with Iraqi authorities to develop the country’s natural gas reserves and expand solar power capacity.
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