Sinopec Says Not Excluded from Bidding on Iraq Oilfield

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China Petrochemical Corp, or Sinopec, has not been excluded from Iraq's second round of oilfield bidding and is still in talks with the Iraqi government to defuse the backlash from Sinopec's acquisition of Switzerland's Addax Petroleum Corp., a senior company official told Caijing recently.

"We joined in the first round of bidding and are currently preparing for the second round. We appreciate the opportunity and would like to contribute to Iraq's post-war reconstruction," Zhou Yuqi, chairman of Sinopec International Petroleum Exploration & Production Corp., said in a telephone interview.

Zhou's comments come after Sinopec Group dropped out of an international consortium led by the Italian oil company ENI, which won development rights to Iraq's fourth-largest oilfield, Zubair.

The Iraqi government instructed ENI to drop Sinopec Group, suggesting continuing difficulties arising from the Addax deal.

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Addax assets inherited by Sinopec include a contract to develop fields in northern Iraq. The region is controlled by the semi-autonomous government of Kurdistan, which is involved in a dispute with Baghdad over control of national resources.

Sinopec International is responsible for its parent's overseas acquisitions.

Hussein Shahristani, Iraq's Minister of Oil, announced previously that any contracts the Kurdish regional government signed with foreign oil companies would be illegal, and those foreign companies would also be excluded from oilfield bidding held by Iraq's Ministry of Oil.

Sinopec Group, therefore, was suggested to be eliminated from that country's second round of oilfield bids, foreign media reported in the beginning of October.

But Zhou explained that Sinopec Group only inherited Addax assets in Kurd-controlled areas of Iraq from the acquisition deal, which was not the company's "own historical problem." These assets were also quite small, Zhou said.

Sinopec Group agreed to buy Addax for about C$8.27 billion on June 24, and therefore owned its crude oil assets in West Africa and the Kurd-controlled areas of Iraq.

According to Addax's second-quarter financial report, its daily average crude oil output was 143,000 barrels, only 8.3 percent of which came from assets in Iraq.

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Zhou further said that Sinopec Group hoped to communicate with Iraq "face to face" on the Addax deal.

The company has tried to convince Iraq's Ministry of Oil that it respected Iraqi law and had no intention to cause any misunderstanding between Iraq's central government and the Kurdish regional government, Zhou said.

"It is an option for Sinopec Group to communicate and clear up the misunderstanding, in order to satisfy Iraq's government," an anonymous energy analyst told Caijing.

The company can also choose to peel off Addax's assets in Iraq to win the local government's trust, if the communication did not go on well, the analyst said.

But it is also a possible option for Sinopec Group to give up the second round of bidding, as it could only get service contracts in the process, the analyst said.