OREANDA-NEWS. July 01, 2011. China's largest oil company has begun operations at Al-Ahdab oil field in Iraq, making the field the first major new area to start production in Iraq in 20 years, according to an official news report.

Operations began June 21, and the field is expected to produce 3 million tons of crude oil per year, reported China Daily, a state-run, English-language newspaper. The oil field was discovered in 1979 and is believed to contain a billion barrels of crude.

The Chinese company, China National Petroleum, a state-owned enterprise, secured rights to the field under a technical-services contract signed with the Iraqi government in November 2008. Under the contract, the company is investing USD 3 billion and has development rights for 23 years, China Daily reported.

The contract, the renegotiation of a deal first signed in 1996 with the government of Saddam Hussein, was postponed after the United Nations imposed economic sanctions on Iraq and the U.S. military toppled Saddam in 2003. Analysts say the Al-Ahdab operation is China National's largest in the Middle East.

The contract stipulates that the company receive a fee for every barrel of oil produced, rather than an equity interest in the oil field, as it would have under the original agreement with Saddam's government. A Chinese oil executive said in 2009 that the company would make a profit of less than 1 percent but that the contract was a way to "get a foot in the door" of the Iraqi oil industry, which has much larger fields than Al-Ahdab.

The deal began drawing intense criticism from residents and officials in Wasit province, where the field is located, shortly after the contract was signed. Some people demanded that Wasit be granted a royalty of a dollar a barrel to improve access to clean water, health services, schools, roads and other public needs in the province, which is among Iraq's poorest. The Iraqi government rejected the demands.

Local residents complained in 2009 that Chinese development of the field provided no benefits for them, other than providing several hundred people jobs as laborers and security guards for less than USD 600 a month. At the time, China National said it was in an exploration phase and did not need much labor. Now, with the start of production, it is unclear whether the company has hired more residents.

At the time, the 100-or-so Chinese workers at the compound were too scared to leave the area for fear of being kidnapped.

The Al-Ahdab field's estimated reserves are small by Iraq's standards. The Rumaila field by the southern city of Basra, for which China National and BP signed a development deal in June 2009, is Iraq's largest oil field, with an estimated 17.8 billion barrels. Iraq as a whole is estimated to have reserves of more than 100 billion barrels.

As a result of its rapid economic growth, China's energy needs have soared, and it has been scouring the world for energy sources.

President Omar Hassan al-Bashir, of Sudan, in which China has large oil interests, arrived in Beijing for talks with Chinese leaders. Al-Bashir faces indictment by the International Criminal Court on war-crimes and genocide charges, but China is not obligated to arrest him because it is not a signatory to the court.