China starts Iraq's first foreign oil work in decades

By Ahmed Rasheed

BAGHDAD, Jan 2 (Reuters) - The Chinese National Petroleum Company (CNPC) started work on a $3 billion oil project in Iraq on Friday, the first foreign firm to begin such work since dictator Saddam Hussein nationalised the industry decades ago.

A CNPC delegation formally opened the al-Ahdab oi field project in Iraq's eastern province of Wasit, officials there said.

"It's a significant event which signals the first contribution of a foreign company in developing Iraq's oil fields for three decades," Wasit governor Latif al-Tarfa told Reuters by telephone.

"The Chinese engineers have located the spot where they will construct a field work site, and all the company's equipment will reach the southern port of Basra soon."

He said Iraqi security forces were prepared to protect the Chinese workers: "We will do all that is required to prove Iraq has become secure for all foreign oil companies to start developing its fields."

The Chinese will operate al-Ahdab under a service contract initially negotiated under Saddam but renegotiated last year by the new Iraqi government which obtained more advantageous terms.

The field should produce 110,000-130,000 barrels of oil per day -- small by standards in the region -- but the project is an important signal as the government enters negotiations for much larger projects announced this week and earlier in 2008.

Iraq has the world's third-largest reserves of oil, which provides nearly all government revenue. But production has dwindled and infrastructure decayed after decades of economic sanctions and war.