Iraq Oil Report

Plus:
*Iraq announces five long-term oil field/two gas field contracts up for bid
*Iraqi Kurdistan pans Baghdad’s moves
*Iraq Parliament Oil & Gas Committee demands oversight
*KRG explains oil deal breakdown

The U.S. advisers tasked to Iraq’s Oil Ministry were involved to some extent in the negotiated contracts between Iraq and the major international oil companies. U.S. advisers have been assigned to every ministry since 2003, but the oil sector was particularly shadowy and quiet.

Andrew E. Kramer of The New York Times reports a few of the U.S. advisers have told him of their involvement.

In their role as advisers to the Iraqi Oil Ministry, American government lawyers and private-sector consultants provided template contracts and detailed suggestions on drafting the contracts, advisers and a senior State Department official said.

It is unclear how much influence their work had on the ministry’s decisions.

Shell, BP, Chevron, Total, ExxonMobil, BHP Biliton, Dome and Vitol have all been negotiating technical support contracts with the Oil Ministry since late last year. The companies would get paid a set price for a set service: technology, equipment and training. Iraq’s oil sector needs of this, after decades of war, sanctions and Saddam Hussein ruined the once prominent domestic oil industry. And it needs help in making quality deals, as Iraqi experts were thrown out for political and religious affiliation or taken out by the violence.

The deals have not been made public, including their terms and price tag, and until that happens the quality of the return to Iraqis cannot be evaluated thoroughly. Even the details on the oil fields involved – Kirkuk, Rumaila, West Qurna, Zubair, Subba & Luhais and fields in Maysan province – are just now being released. Each field is to increase production by 100,000 barrels per day within the two year contract life, adding to the 2.5 million bpd produced in Iraq currently – a high since 2003.

The U.S. government has claimed it is not connected with negotiations, just offering advice when asked, and says the contracts are private sector matters.

USG policy since 2003, however, has been an advocate of free market and private sector leads in Iraq’s economy.

But Iraq has not concluded, if even conducted, the all important discussion as to what their oil industry should look like. Particularly, what the role of the international oil industry should be. Without that, any oil deals signed – be it by the Kurdistan Regional Government or Baghdad – will be controversial and face claims of illegitimacy, especially if the contracts are negotiated behind closed doors and not in a bidding process, and if the powerful oil unions don’t consent to the program.

Adding in the large oil companies who ran Iraq’s oil sector as their backyard playground in the first 40 years of Iraq’s oil life is another complication.

These deals, and those signed with the KRG, have not set well lately with members of Congress, Ben Lando reported last week for United Press International.

Iraq will offer seven oil and gas fields to international oil company development, Oil Minister Hussain al-Shahristani announced, to be awarded later this year or early next year.

These differ from the technical support contracts, which are limited in time and scope, and were not transparent, though the ministry claims the deals will be made public.

The bidding round, however, is supposedly going to be completely open, though the round of tenders has not been included in the Oil Ministry’s website, where oil sector tenders are usually cataloged.

The fields are Rumaila, Kirkuk, Zubair, West Qurna Phase 1, Bai Hassan and the Maysan fields. Maysan comprises three fields, Bazargan, Abu Gharab and Fakka, and the Oil Ministry said they are open to foreign firms for long-term development contracts, Ahmed Rasheed reports for Reuters. Two gas fields, Akkas and Mansuriyah, were also opened.

Taken together, the short-term and long-term contracts will open the door to major international involvement in the OPEC member’s oil sector for the first time in nearly four decades.

The Iraq Petroleum Co., a selection of the world’s largest oil companies from the 1920s through 1960s, had exclusive rights to explore and develop (or not develop, if they saw fit) Iraq, and had control over how much of the funds returned to the country.

The nationalization that began in the early 1960s and was completed a decade later is still considered a proud point in Iraq’s history, and international oil companies and their government supporters are viewed warily at best.

The Iraqi Parliament’s Oil & Gas Committee is demanding it reviews all oil contracts signed in Iraq.

Mustafa al-Hashemi reports for Azzaman the deputy of the committee, Abdul-Hadi al-Hasani, says that without a new oil law, the committee must vet oil deals.

Iraq is moving forward on developing the post-2003 oil sector using regulations remaining from before the war. Although the constitution called for new legislation for the hydrocarbons sector, that draft law has been stuck in political deadlock. The old law gave the Oil Ministry much sway, after Saddam Hussein shut down the Iraq National Oil Corp. in one of his political consolidation moves.

The Kurdistan Regional Government has also signed dozens of negotiated oil deals with international oil companies to explore for and develop oil in its three northern provinces, inluding a handful just last week,and Baghdad has demanded oversight in weak ebbs and flows of statements.

The KRG says the 2005 Constitution authorizes its moves, though Shahristani has called them illegal and the two sides have often butted heads over oil development rights.

For more on the KRG deals, read “Wildcatters in Controversial Northern Iraq Deals Optimistic,” by UPI’s Ben Lando.

Though the KRG has typically kept quiet on the Baghdad oil moves, it has now released a report it commissioned comparing its production sharing contracts with Shahristani’s six technical support deals.

The KRG report called the TSCs “disastrous,” according to a KRG statement.

For the full report by oil legal regime expert Dr Pedro van Meurs, click here for the PDF.

The study said Iraq would lose hundreds of billions of dollars over time due to the PSCs.

The contracts have not been published, but Ashti Hawrami, Iraq’s Kurdistan Regional Government natural resources minister, insists everything needed to know about what’s in the dozens of contracts signed between the KRG and international oil companies is in the public domain.

In a recent interview with United Press International’s Ben Lando from his office in Erbil, the capital of the KRG, Hawrami explained the breakdown of contract ownership by the companies and how much control the government has in the contract.

Spencer Swartz reports for Dow Jones Newswires that recent negotiations in Baghdad over the oil law didn’t make any progress.

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