* Drilling to start as early as March
* Beefs up Iran operations with focus on 3 oil, gas projects
* Gas delivery remains in question due to sanctions (Adds analyst comment, write throughout)
By Chen Aizhu
BEIJING, Feb 10 China's top energy group CNPC has clinched a deal to develop phase 11 of Iran's South Pars gas project, and beefed up its business operations in the Islamic Republic that sits on one of the world's largest hydrocarbon reserves, an industry official told Reuters.
CNPC will start drilling in the gas field as early as March to evaluate the reserves, after its initial overall development plan won Tehran's approval near the end of last year, pushing ahead the $4.7 billion project after a preliminary pact was sealed last June.
CNPC, parent of listed PetroChina (0857.HK), had beefed up staff in December to about 60, based in Beijing and Tehran, dedicated to operations in Iran that also include two oil projects that together with South Pars will likely cost a combined $10 billion.
"The real work will start as soon as after the Chinese New Year holiday," said the official familiar with CNPC's international operations.
China, one of the five U.N. Security Council members with veto power, reiterated last week that it preferred dialogue to sanctions handling Tehran as six major powers discussed efforts to persuade Iran to halt its nuclear enrichment programme. [ID:nN05115578]
By starting real exploration works, CNPC will gain a foothold ahead of other international firms such as French major Total (TOTF.PA) or domestic rival CNOOC, which have been stalling at the levels of memorandums of understanding.
"If the project went ahead, the overall delivered cost of LNG into China would likely be lower than the existing oil-indexed LNG contracts such as from Qatar and Australia, because they will be operating throughout the value chain," said Gavin Thompson of energy consultancy Wood Mackenzie.
But gas production and delivery from the giant South Pars remain in question partly because the United States and U.S. sanctions prohibit access to key liquefying gas technologies that are mostly in the hands of U.S. firms, analysts have said.
"The process to deliver gas will be notoriously slow," said Thompson.
A CNPC spokesman was not immediately available for comment.
IRAN & IRAQ
Company officials told Reuters that CNPC had internally acclaimed 2009 as the year marking one of the firm's biggest feats in its decades-long overseas drive, led by its ambitious and charismatic chairman, Jiang Jiemin.
Apart from the South Pars deal, CNPC won two service contracts in Iraq to develop giant oilfields Rumaila and Halfaya, allowing the firm access to total estimated reserves of about 21 billion barrels. [ID:nGEE5BA276]
"CNPC has made it a distinctive strategy: to gain a foothold in countries with top reserve bases. Iraq and Iran are among the top in the list," the official said.
In Iran's oil sector, CNPC is already in a deal to develop the North Azadegan field into a 120,000-barrel per day field at a cost of at least $2 billion.
CNPC became the operator of the smaller, aging Masjed-i-Suleiman (MIS) field that will produce 20,000 bpd, industry sources have said.
It was not clear if Petronas, Malaysia's state oil and gas firm experienced in LNG business, would still tie up with CNPC for the South Pars project. Petronas said last June it would partner with CNPC when the Chinese firm took over as the main foreign investor. [ID:nSP71781]
The South Pars project is part of a huge formation shared with Qatar that makes up the world's largest pure gas reserve. The Iranina part, divided into 24 phases, could cost more than $40 billion to develop. (Editing by Clarence Fernandez)
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