Analysis: Iraq oil deals moving in phases

By BEN LANDO, UPI Energy Editor   |   March 10, 2008 at 10:35 PM   |   0 comments

WASHINGTON, March 10 (UPI) -- With or without a new oil law, Iraq will sign deals with international oil companies aimed at boosting production, the top Oil Ministry spokesman said.

"The Ministry of Oil had to make a move, with or without passing the oil law," Assem Jihad told United Press International in a phone interview from Baghdad, "and set up the suitable plans to increase the oil production."

Iraq oil production is increasing but has only recently been consistently more than 2 million barrels per day. Its workers need modern training, the fields modern equipment and the harmful effects of Saddam Hussein's mismanagement, U.N. sanctions and decades of war reversed.

Jihad said special contracts for five oil fields will be signed late this month or next month, each with a goal of 100,000 bpd improvement. The ministry has been mum on details, but media reports and insider information name Shell, BP, Chevron, ExxonMobil and Total in the discussions for Kirkuk, Rumaila, West Qurna, Zubair, Abu Zorgan, Fauqi, Subba and Luhais fields. The later fields may not be included, depending on sources.

"In the near future," Jihad added, the names of companies that qualify to sign longer-term development deals will be announced.

The ministry is moving forward with an ad-hoc plan to increase outside investment in the oil sector as a draft oil law intended to set post-Saddam guidelines for governing the oil sector remains stuck in Parliament.

Various factions, mainly the Oil Ministry in Baghdad and Iraq's Kurds, can't agree on how decentralized -- thus potentially privatized -- the currently nationalized sector should be.

The Kurdistan Regional Government has passed its own oil law and signed dozens of exploration and production deals with international oil firms, the types angering Iraq's oil workers and prompting Baghdad to call them illegal and threaten to blacklist the firms that sign.

Last week the ministry got the OK from the Iraqi Cabinet to move forward with the plan: sign two- to three-year Technical Support Agreements to increase production on the five large fields and begin the process for a bidding round to develop both producing and non-producing discovered oil and gas fields.

Many oil companies have been offering free training to workers and studies of oil and gas fields and structures. The new TSAs will be "formalizing the process of backdoor assistance," one international official in Iraq told UPI. Terms to be worked out include exact compensation. One option being looked at is crude in lieu of cash, but such an arrangement may not jive with U.N. regulations held over from the corrupt Oil-for-Food program, which prevents bartering and requires all oil and gas is sold.

The deals are "sort of maintenance for the oil infrastructure," said Abdul-Hadi al-Hasani, deputy chief of the Parliament's Energy Committee, "not really drilling or extracting of crude." The firms that sign TSAs will transfer technology, training and advice, the ministry says. Security is a big, but not sole, factor for foreign oil companies to largely keep boots off the ground.

Without a new oil law, the ministry is relying on Saddam-era regulations folding almost all power into its hands. It must receive parliamentary approval for the largest contracts and certain types, such as production-sharing contracts. Hasani said many will need to be approved by the Iraqi Cabinet, though, because of their size.

"The Ministry of Oil considers the government as its reference," Jihad said, "and informs it with each step in this direction.

"The government essentially asked the Ministry of Oil to do what it could to develop the oil industry to increase oil production and develop the fields."

More than 115 companies have pre-registered with the ministry to take part in the bidding round, "an invitation from the Ministry of Oil … to invest in the extract sector," Jihad said. "There are many wells and fields that need development."

The deals offered in the tender will likely be service contracts (where a company is paid to carry out certain work). The Middle East Economic Survey reports Oil Minister Hussain al-Shahristani says the deals won't need Parliament's green light, which means PSAs and other risk contracts aren't being considered now. He didn't disclose either the contract type or the number of fields, MEES reports.

Jihad said the ministry will be transparent, releasing the names of companies and terms of contracts, and holding news conferences as major milestones -- like naming qualified companies -- are reached.

The companies that get the pending five TSAs will not be guaranteed longer-term development deals for the fields, Iraqi officials say, though two or three years of work and study will certainly pad a resume.

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(UPI Correspondent Hiba Dawood contributed to this report.)

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(e-mail: blando@upi.com)

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