Sonangol wins oil deals in Iraq's riskiest region

Sat Dec 12, 2009 11:26am EST

*Angolan firm wins Qayara, Najmah oilfields

*Fields near Mosul, one of Iraq's most violent cities (Adds details, quote, background)

By Simon Webb

BAGHDAD, Dec 12 (Reuters) - Angola's national oil company Sonangol won deals to develop two oilfields in one of Iraq's most dangerous provinces on Saturday.

The Qayara and Najmah oilfields were among the smallest on offer in a two-day auction for 10 fields that included some of Iraq's choicest fields.

Sonangol won two of the highest per-barrel remuneration fees at the auction -- $5.00 for Qayara and $6.00 for Najmah.

The higher fees reflects the smaller size of the fields and the lower quality oil they will produce and may also be an indicaton of the difficulties facing Sonangol in a dangerous corner of Iraq, still grappling with post-war violence.

The nearby city of Mosul is one of the most violent cities in the country. Shootings or bombings by insurgent groups like al Qaeda are a regular occurence.

The region's diverse population of Arabs, Kurds, Christians and Turkmen is one reason for the tension. Organised crime in a security vacuum is also blamed for the high rate of violence.

Angola itself was gripped by a 27-year civil war after winning independence from Portugal in 1975. As many as 1.5 million people were killed in the fighting.

Oil at Qayara has API gravity of 15, by far the lowest among the 10 fields offered at Iraq's second bidding round. Crude quality is measured in degrees of API gravity; the higher the gravity, the easier it is to refine into transport fuel.

Data on the API gravity for Najmah was not available.

Sonangol won the deal for Qayara on Saturday, agreeing to Iraq's proposed fee of $5. On Friday, the firm had rejected cutting its bid fee of $12.50.

It won the deal after revising estimates that excluded the cost of facilities to lighten the heavy oil, a senior Sonangol official said at the oil auction on Saturday.

"Our numbers yesterday included upgrading crude for pumping. That is not in the Iraqi number and that means we can accept $5 without upgrading," Paulino Jeronimo, Sonangol's exploration manager, said. "We just take the crude to the delivery point."

Sonangol planned to lighten the crude to around 21-24 API to more easily pump it through pipelines, Jeronimo told Reuters.

The company would invest about $2 billion in the Qayara field alone, he said.

Sonangol targets plateau production of 120,000 barrels per day (bpd) at Qayara and 110,000 bpd at Najmah.

The company estimates its output next year will reach 3 million bpd, according to its website.

Angola, which like Iraq is a member of the Organization of the Petroleum Exporting Countries, is the second-biggest oil producer in sub-Saharan Africa. (Additional reporting by Missy Ryan and Ahmed Rasheed; Writing by Ayla Jean Yackley; Editing by Victoria Main) (ayla.yackley@reuters.com; Baghdad newsroom: +964 790191 7033; Reuters Messaging: ayla.yackley.reuters.com@reuters.net))

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