CNOOC Ltd. (NYSE:CEO) signed a technical service contract, TSC, with Turkish Petroleum Corporation (TPAO), for development and production of the Missan Oil Fields within Iraq.

The company expects to earn $2.3 per barrel (bbl) on the incremental oil production once the fields’ daily output is raised by 10% from their current level. The contract term is 20 years, and CNOOC expects to increase the daily production of the Missan Oil Fields to 450,000 barrels within six years. The Missan Oil Fields are located about 350 kilometers southeast of Baghdad.

CNOOC, as the operator of the project, holds 63.75% participating interest in the deal, while its minority partners Turkish Petroleum Corp. and Iraqi Drilling Company hold 11.25% and 25%, respectively. The deal is still subject to approval from the Iraqi government.

$2.3/bbl profit margin is fixed regardless of movement in oil prices going forward. Consequently, although we expect the potential upside from the deal to be neutralized with rising oil prices, the deal will likely protect the company from decreasing oil prices and field development and production costs.

With the achievement of the targets, we also believe that the company could win further contracts from the Iraqi government and enhance its growth profile.

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