Afghanistan Awards 1st Oil Contract to China

Afghanistan on Wednesday signed its first-ever major contract to export its oil reserves, as its government signed a deal with China National Petroleum Company to develop a small oil field in the northern part of the country. CNPC is investing an initial $400 million in the project, and the deal is eventually expected to generate $7 billion in revenue for the war torn nation. “Today is a historic day in Afghan history,” declared Afghanistan’s minister of mines, Wahidullah Shahrani, in a statement. “This is the first time that Afghanistan signs a great contract for the country’s oil exploration.”

The field is estimated to contain as much as 80 billion barrels of oil, and is located in the relatively stable northern region of the country. Afghan officials chose the Chinese deal, they say, because they offered more favorable terms than firms from the US, UK and Australia. Under the deal, CNPC will get to keep 15 percent of the proceeds from the field, with Afghanistan keeping the remaining 85 percent. The deal is a better arrangement than oil companies have in place in places like Iraq and Libya, which keep 90 percent or more of proceeds, but worse than deals in the US and Canada, which only keep about half.

While the size of the oil field is relatively small, CNPC hopes that by securing the deal, it will give it an advantage in obtaining future contracts to tap what the ministry claims is as much as 1.6 billion barrels of oil in the nation. China and smaller oil companies are typically the first to bid on contracts to develop oil in unstable regions, as big Western oil conglomerates like Exxon Mobil, BP and Royal Dutch Shell tend to be a bit more conservative in their strategic decisions.