Chevron first in line for new Iraq oil deals

6 02 2008

Another reason to come out on March 15!

From the Financial Times:

Iraq pushes ahead with oil plans
Financial Times of London
By Roula Khalaf and Dino Mahtani in London

Published: February 5 2008 18:30 | Last updated: February 5 2008 18:30

The Iraqi government is inviting major oil multinationals to participate for the first time in the development of the oil industry, without waiting for the passage of crucial but controversial hydrocarbons legislation.

In a sign that the oil law the US has been pressing for is unlikely to be agreed by parliament any time soon, Hussain Shahristani, Iraq’s oil minister, said in an interview with the Financial Times that Iraq was now determined to push ahead with plans to raise production from a current 2.5m barrels per day to 6m bpd in five years.

Speaking on the sidelines of a conference in London, he said major companies were registering to pre-qualify for oil development licences before the February 18 deadline. The process, he said, should lead next year to the award of the first contracts to develop oil fields across the country.

Oil giants, so far deterred from Iraq by violence and the absence of clear legislation, are showing keen interest in the pre-qualification process. It marks the first opportunity to tap into a country with the world’s third largest proved oil reserves and a largely undeveloped oil industry with low production costs.

But the companies will no doubt require more legislative clarity and further improvements in security before committing substantial investment. Jeroen van der Veer, Royal Dutch Shell’s chief executive officer, said last week: “We are in the race so to say, we would like to work in Iraq but the petroleum law is not ratified so we don’t know the conditions. We would like to know the rules of the game.”

While eyeing more long-term relationships with Iraq, major companies are negotiating technical support contracts to get their foot in the door and help raise production of several oil fields by 500,000 bpd this year. These deals do not involve putting teams on the ground and are confined to offering arms-length technical and managerial assistance. The companies include Royal Dutch Shell and BP as well as US giants ExxonMobil and Chevron.

The exact terms of the longer-term development contracts have not been decided yet, according to Mr Shahristani.

The minister said a “model contract” would be worked out, compensating companies for bringing in technology and financial resources while guaranteeing full government ownership and control of oil.

One senior western oil executive said the exact nature of the contract was not necessarily controversial. “I don’t mind as long as you get part of the upside,” he said.

Mr Shahristani’s decision to bypass an oil law reflects the government’s frustration with the Kurdish regional government, which has been seeking more independence on oil policy, fuelling a protracted dispute with other parliamentary groups.

The Iraqi cabinet approved the oil law a year ago but has since been unable to pass it through parliament, partly due to disagreements over the sharing of oil revenues between regions.

The government in the Kurdish north, meanwhile, has passed its own oil law and has been signing exploration contracts with western companies, causing anger in the central government. Mr Shahristani has warned that these contracts are illegal and companies involved in the contracts could be blacklisted.

The minister denied that the decision to move ahead with development contracts was primarily a tactical move designed to put pressure on the Kurdish bloc, however.

“Iraq has lost decades of opportunity and we’ve lost a year discussing a draft law. Now the government has decided to go full speed ahead in developing these fields,” he said. “We owe it to the Iraqi people to develop oil resources well.”


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