BAGHDAD (Reuters) - Chinese state oil firm CNPC won the right to develop yet another lucrative Iraqi oilfield on Friday, as the Asian powerhouse’s need to secure future energy supplies drove it to make aggressive bids for contracts.
Cheap labour costs and a willingness to take more risks than their Western counterparts have given Chinese state energy firms the edge in their hunt for fuel to feed China’s booming economy.
A CNPC-led group of oil firms bid successfully on Friday to develop Iraq’s Halfaya oilfield, in Iraq’s second oilfield auction since the 2003 U.S. invasion.
The contract is the third big deal CNPC has secured in Iraq. It was the first to sign a major oil deal since the war with a contract for the Ahdab oilfield. In June, it formed part of a BP-led (BP.L) consortium that won the only contract awarded at the first round to develop the supergiant Rumaila field.
“It’s a reality that the Chinese have bid very aggressively for Iraq oil acreage. It’s a very transparent, open bidding process and the Chinese have taken advantage of it. They have been very aggressive and willing to agree lower fees than others might have,” said Raad Alkadiruim, head of global risk at Washington-based consultancy PFC Energy.
CNPC or other state-owned Chinese energy firms either led or were part of consortiums that made all the bids at the June auction.
In Friday’s second round, CNPC was also partnered with France’s Total (TOTF.PA) in an unsuccessful bid for the supergiant Majnoon oilfield, while Chinese state energy firm CNOOC was part of a failed bid for Halfaya.
The contracts on offer are 20-year service deals which pay a remuneration fee per barrel. Not including Ahdab, the fields for which deals were awarded in which CNPC has a stake have total estimated reserves of about 21 billion barrels.
CNPC secured the Ahdab deal last year, reviving a Saddam Hussein-era contract after a year of talks and getting ahead of Western oil firms jittery about entering a country still plagued by bombings and legal uncertainties.
“It’s true that they have been willing in many parts of the world to take risks,” said John Mitchell, an energy and oil industry analyst at Chatham House.
Chinese state firms have in recent years been aggressively pursuing deals in Africa, South America and elsewhere, including countries Western firms find it difficult to operate in.
“Western firms are particularly concerned about the security of their employees and exposure to litigation in their home countries if they don’t take proper care of them ... Perhaps Chinese companies are not so sensitive to those issues,” Mitchell added.
China’s state companies are also backed by a government with deep pockets and a huge pool of cheap labour, making them an attractive partner for Western oil firms looking to reduce risks and costs whilst also getting a foothold in frontier projects.
“We’ve seen the Western companies partner with CNPC to not get outbid and to help them get cheaper equipment and workforce,” said Samuel Ciszuk, Middle East energy analyst at IHS Global Insight.
Chinese firms, in turn, get the partners needed to handle the huge fields on offer in Iraq, home of the world’s third largest oil reserves, and perhaps benefit from Western knowhow and equipment, analysts say.
In any case, Iraq has indicated it prefers consortiums to bid for its fields, so a Chinese-only venture may not have been looked at quite as favourably.
Additional reporting by Simon Webb; editing by James Jukwey