China National Petroleum Corp (CNPC) has signed a memorandum of understanding (MOU) with National Iranian Oil Company (NIOC) over the development of South Azadegan oilfield, under which the Chinese company will cover 90 percent of development costs and take 70-percent stake in the project.

Currently, NICO holds 90 percent share in the project with Inpex of Japan having the remaining 10 percent. Under the MOU, CNPC will buy 70 percent of NICO share, Iranian Oil Ministry website Shana said in a report.

Naji Sadouni, managing director of Oil Engineering and Development Co of NIOC, said the project needs an investment of $2.5 billion. The field will produce 260,000 barrels of oil a day all together (150,000 barrels in first phase and 110,000 barrels in second), said the report.

The report did not disclose financial details.

South Azadegan oilfield development has budgeting problems and NICO cannot afford 90 percent of the project. The Japanese helped NICO with $3 billion. But as the world economic conditions have changed, it is not possible to fund the project through this strategy, said Sadouni.

CNPC on Friday declined to comment on the report. But a CNPC manager in Beijing told Reuters that the MOU was actually signed in early spring of this year and the two sides made no real breakthrough in the negotiations since then.

CNPC won a deal in January to develop the North Azadegan oilfield.

Azadegan is the world's biggest united oilfield in last 30 years and enjoys 42 billion barrels of oil. Its measure is about 900 sq km - including southern and northern part.

Analysts said the move indicates that Chinese companies are showing increasing attention on the Middle Eastern region, which boasts the largest oil reserves in the world.

With footholds in Iran, China can diversify its oil supplies to enhance energy security, said Han Xiaoping, a veteran energy analyst in Beijing.

(China Daily August 1, 2009)