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China Seals Oil Exploration Deal with Nigeria
Making inroads into area dominated by Western countries

Njei Moses Timah (njemotim)

Published on 2006-05-21 14:54 (KST)

Nigeria gave four of 17 drilling licenses to China National Petroleum Corp. (CNPC) on May 19. The deal cements an agreement made last month during a visit by Chinese President Hu Jintao.

China will explore two areas in the restive, oil-producing Niger Delta and two areas in the Chad basin, where oil is yet to be produced. In exchange for the licenses, China will invest $4 billion to build a railway system and power stations and to control a stake in the 110,000 barrel-a-day Kaduna oil refinery.

China is expected to pay some $15 million for the exploration rights in the Niger Delta, and a much smaller amount for the rights in the "risky" Chad basin.

"The success at the bidding has given us the opportunity to be part of Nigeria's massive oil sector," said Huang Yu, vice president of CNPC. Eleven companies qualified for the bid including two local companies. In the agreement made last month, China held first right of refusal for four exploration licenses in the auction.

Nigeria is the largest oil producer in Africa and the seventh largest in the world with an estimated daily production of 2.6 million barrels of crude oil. China is the biggest consumer of oil after the United States.

As its consumption continues to rise, China's quest for new sources of oil has become more and more urgent. The deal is seen as a significant first step for China in positioning itself as a future player in the Nigerian oil sector, which is dominated by Western countries.