Iraq announces details of oil contracts

Foreign energy companies seeking to invest in Iraq are being offered a new type of deal.

A protester in a giant figure of US vice president Dick Cheney poses amongst tens of demonstrators gathered outside oil company Shell's headquarters in London on Oct 11.

In a move bound to spark more political controversy in Iraq, foreign energy companies seeking to invest in the country have been offered a new kind of deal that would allow them to share in long-term profits from oil and gas production. In a surprise development at a meeting in London on Monday, the Iraqi oil minister, Hussain al Shahristani, invited 35 pre-qualified foreign oil companies to bid for a share of revenues from six big Iraqi oil fields and two gas fields after certain initial targets are met. The competitive bidding round will be Iraq's first for licences to produce oil and gas in the oil-rich country, and is being closely watched internationally. The structure of the new deals unveiled by Mr Shahristani runs against what most western oil companies and analysts were expecting and many had feared: more "technical services contracts" based on flat fees for pumping oil. Instead, by offering extra long-term incentives to foreign investors in Iraq's re-emergent oil sector, the Iraqi oil minister may have swept aside one of the biggest impediments to getting the country's energy development programme back on track: persuading technically savvy western oil companies to assist. Mr Shahristani said outside help was needed to boost Iraq's oil output to the level required to finance reconstruction. "Current production is by no way meeting our needs for the redevelopment of the country," he said, The oil minister made clear that his top priority was ending the delays that have beset Iraq's efforts to rehabilitate its oil sector in the six years following the US-led invasion of the country. Foreign oil companies are expected to submit bids on the 20-year contracts within six months, and Iraq's government wants deals to be in place by next June. Only the Iraqi cabinet would review the deals and decide whether to approve them, Mr Shahristani said, bypassing the need for protracted debate in Iraq's politically fractious parliament. "We cannot afford any more delays," he told reporters. But the bold move is likely to anger many Iraqis, including oilfield workers, who are highly suspicious of foreign involvement in the country's energy sector, and some influential politicians and bureaucrats who have been calling for oil assets to be nationalised. To appease such factions, the only previous oil agreement signed by Mr Shahristani has been a technical services contract with China National Petroleum Corporation, which he strongly suggested would serve as a model for future deals. The oil minister also said on al Jazeera television that Iraq would never sign production-sharing agreements with foreign oil companies. Although details of the proposed oil contracts were not fully disclosed on Monday, the deals now on offer appear to be a hybrid between politically safer technical services agreements and industry-preferred production-sharing contracts - revenue-sharing deals that are standard in many oil-producing jurisdictions. In the bidding round, Baghdad will offer foreign companies or consortia 49 per cent stakes in 20-year oil and gas development programmes for six fields containing more than 40 billion barrels of oil in total, or nearly 38 per cent of Iraq's 115 billion barrels of proved oil reserves, plus two big gas fields. Iraqi state oil companies will hold 51 per cent interests in each project. The foreign partners will also be required to pay a US$10 million (Dh36.7m) signing bonus for each deal, and taxes and fees on production. Revenue-sharing compensation would depend partly on the success of drilling programmes to expand each field's established reserves and production capacity. Making Mr Shahristani's job even tougher, Iraq's resource nationalists are not the only parties likely to oppose the deals. The semi-autonomous Kurdish Regional Government (KRG) in north-eastern Iraq wants Baghdad to pass a law allowing pure production-sharing agreements, and it resents not being consulted on the contracts being offered in the federal bidding round. "The federal oil ministry on their own have no legal power or legal mandate to negotiate and sign contracts," Ashti Hawrami, the KRG natural resources minister, told United Press International. He said Iraq's new constitution forbids the national oil ministry from signing oil deals without parliamentary approval. A proposed federal Iraqi oil law and three related laws have been stalled by political fights over national versus regional control of oil development and the extent to which foreign oil companies should be involved. The latter issue has led to confrontations between Iraqi oil workers and the government. "Iraqis would have to live with this deal for decades. The tragedy is that when the occupation finally ends, Iraqis may find their economy and natural resources are no longer their own," said Greg Muttit, the co-director of Platform, a British organisation that works with Iraqi oil workers. On Saturday, Platform staged a protest outside the London offices of Royal Dutch Shell and BP, which will join ExxonMobil, Chevron, Total and 29 other oil companies preparing bids. Last month, Iraq produced about 2.3 million barrels per day (bpd) of oil, according to industry estimates, down from its 2.5 million bpd post-war peak reached this summer. [e-mail]