BEIJING (Reuters) – China’s CNOOC Ltd has quit most of its 35 percent share in the smaller of its two Nigerian oil stakes even after the Nigerian operator drilled two successful wells, a source close to the matter said.

It was not immediately clear why CNOOC decided to relinquish its working interest in oil mining license (OML) 141, formerly oil prospecting license (OPL) 229, after two exploration wells in the shallow-water block sunk last year struck oil.
The move is a rare setback in Chinese state firms’ dash into resource-rich Africa, although some are also suffering a rising number of kidnaps of Chinese workers on the continent and growing criticism from rights groups.
CNOOC, China’s No. 3 oil and gas firm, agreed earlier this month to return its 35 percent share to independent Nigerian firm Emerald Energy Resources Ltd (EERL), the project’s operator, the source with direct knowledge of the situation told Reuters.
Under a new agreement, CNOOC would keep a nominal 5 percent stake as collateral for an $80 million loan to the project.
CNOOC said last year it had paid $60 million to buy the stake in OPL 229 in January 2006. It was not immediately clear whether it would recoup any of that investment.
“You would be scratching your head why CNOOC would make such a decision to quit the project after all the money they spent,” said the source, who requested anonymity.
While the development is far less advanced than Total’s OML-130, in which CNOOC bought a $2.69 billion stake in early 2006, it is one of a handful of prospective fields that could boost production from OPEC member Nigeria, where output has been curtailed for years due to militant attacks on infrastructure.
EERL, headed by Dr. Emmanuel Egbogah, a prestigious geologist appointed a year ago as the Nigerian President’s special advisor on petroleum, is now in advanced talks with new partners to invest in the block, said the source.
Lesser-known Nigerian companies often secure access to prospective oil leases thanks to their local presence and contacts, but typically bring in foreign partners to develop the resources if they lack the expertise or financial strength.
EERL was not immediately available for comment.
Yang Hua, CNOOC's Chief Financial Officer & Executive Vice President, declined to comment on whether CNOOC has quit the block.
“There are many blocks we are working on. We move in and out – it’s very normal. But I can’t comment on any specific block,” Yang told Reuters last week.
CNOOC bought its stake from AERD Projects Nigeria Ltd, a little-known outfit of state-run China Export and Credit Insurance Corporation (SINOSURE), China’s main funding vehicle in Africa.
Chinese media reported in April that SINOSURE's chief, Tang Ruoxin, was under government investigation on charges of unspecified illegal activities.
CNOOC subsequently put in about $80 million to help fund exploration efforts under a separate pact in which the Chinese firm acted as a technical partner and loan provider.
------------Two wells last year
OPL 229, a shallow-water block of 1,376 square meters with water depth under 25 meters, was upgraded into mining license OML 141 early this year, after exploration wells Barracuda in April 2007 and Dila sunk later in 2007 yielded significant finds, the source said, without giving a figure of reserve.
The field, which the source said could start production as early as 2009, is next to a major find by Royal Dutch Shell, and also adjacent to Brass oil terminal and the planned Brass LNG terminal, industry experts have said.
CNOOC entered into OPL 229 shortly after its $2.69 billion acquisition of Nigeria’s deep sea block OML-130, the Chinese firm’s biggest-ever foreign acquisition hailed as its crowning achievement with recoverable reserve of 600 million barrels.
Total, operator of OML-130, plans to start producing from a first field, Akpo, towards end of 2008.