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China Seeking to Sell its Amu Darya Oil Extraction Rights

Tuesday 18 December 2012

(Silk Road Newsline) – The state-owned China National Petroleum Corporation (CNPC) that began oil production in Afghanistan in October is now seeking to sell its Amu Darya oil basin extraction rights to investors from Tajikistan or Uzbekistan, according to a new Pentagon report.

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Report on Progress Toward Security and Stability in Afghanistan (PDF)
According to the report, mining’s contribution to the Afghan economy has been marginal thus far but has the potential to expand, assuming no significant deterioration in the political or security environment. Extractive industries accounted for $3.33 mln in tax revenue last year, and in the first quarter this year, a little over $1 mln has already been collected.
The mining and extractive industries sector experienced a set-back during this reporting period as a result of the stalled 2012 draft minerals law. The proposed law created a more favourable environment for potential private investors and was endorsed by the IC. The current minerals law, enacted in 2009, has been criticized for specific language separating exploration and extraction rights, which can discourage potential investors since there is no guarantee that companies would be granted the extraction rights necessary to recoup initial capital investment required by the costly exploration phase. The Afghan Cabinet did not pass the new draft Minerals Law when it was presented in July raising concerns about international involvement in the sector and advocating stronger government control of mineral and hydrocarbon resources.
Delays in passing the minerals law have stalled development across the extractive industries sector. Contracts for the Hajigak iron ore deposit were not signed in July 2012, as previously expected. SAIL, a consortium of six Indian companies with rights to three of four tender blocks, and Kilo Gold of Canada, with rights to the remaining block, have delayed signing their respective contracts.

“The China National Petroleum Corporation (CNPC) was awarded rights to three of the eleven blocks in the Amu Darya oil basin early this year and has already begun oil production, with an estimated 5,000 barrels of crude having been extracted to date. However, the crude being extracted contains extreme high sulphur content, which requires additional refining to counter the corrosive effect the element has on steel pipes and storage vessels. Currently, CNPC is seeking to sell its Amu Darya extraction rights to Tajik or Uzbek investors,” the report says without providing any further details, reported Silk Road Newsline.

The December 2012 release of the Report on Progress Toward Security and Stability in Afghanistan, a biannual report to Congress, covers progress in Afghanistan from April 1, 2012, to September 30, 2012. The 172-page report is the tenth in a series of reports required every 180 days through fiscal year 2014 and has been prepared in coordination with the Secretary of State, the Director of the White House Office of Management and Budget, the Director of National Intelligence, the Attorney General, the Administrator of the Drug Enforcement Administration, the Administrator of the United States Agency for International Development, the Secretary of the Treasury, and the Secretary of Agriculture.

According to the Pentagon report, “The Afghan hydrocarbon industry has seen greater progress this reporting period due to more favourable legislation for attracting foreign companies and international investors.”

The Amu Darya basin in Afghanistan is estimated to contain 87 mln barrels of crude oil. In its extraction, CNPC will pay a 15% royalty and a 20% corporate tax, and between 50 and 70% of the profits will go to the Afghan government.

“Here in Angat there are four operating wells and every day the production from the Angat wells will be around seven hundred barrels,” Afghan Minister of Mines Waheedullah Sharani told reporters during his visit to the CNPC production site in October. “From 15th of November these drilling machines, as you can see they’re drilling the well now. From 15th of November they will begin daily oil production in this area, which is known as Kashkar. And every day they will produce or extract 1,400 barrels of crude oil.”

Signed in December 2011, Afghanistan’s 25-year contract with China’s National Petroleum Corporation (CNPC) is the first major oil production in the country. The Government of Afghanistan is now bracing for the March 2013 results of a second tender for the oil deposits in the Afghan-Tajik basin, also in the north and which will be the biggest ever oil project in Afghanistan.

According to the Pentagon report, “The Afghan-Tajik hydrocarbon basin seismic survey is ongoing, with results expected in early 2013.”

A recent survey conducted by the U.S. Geological Service (USGS) estimates that the Afghan-Tajik basin holds as much as “946 million barrels of crude oil, 7 trillion cubic feet of natural gas, and 85 million barrels of natural gas liquids.” According to the USGS estimate, Afghanistan holds as much as 1.9 bln barrels of undiscovered crude oil reserves. If oil prices stay stable, that means Afghanistan could eventually earn more than $9 bln per year, half of the country’s 2011 GDP, from oil.

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