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Analysis: Iraq oil deals drawing near

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by Ben Lando
Washington (UPI) Feb 1, 2008
Iraq's Oil Ministry, in talks with oil majors to boost production in crucial fields, may give long-term deals to firms that offer technical support.

This comes as Baghdad is preparing a first round, though somewhat cloudy in details, of bidding and negotiated contracts to improve its struggling oil sector.

Oil Minister Hussain al-Shahristani told Argus Media on the sidelines of the OPEC meeting in Vienna that all deals would be fully transparent. Work would be carried out by Iraqi workers, he said. There are no legal controls, though, and without it and the re-establishment of the Iraqi National Oil Co. the country's oil sector is moving away from being nationally controlled.

Officials from the world's largest oil companies have been meeting with Iraqi Oil Ministry officials in Amman, Jordan, to fix the terms of technical support contracts. Such contracts, which are shorter-term deals, will "help Iraq fast track the purchase of necessary equipment and train the Iraqi people to install them," Shahristani said.

He said those companies will be favored in a bidding round for longer-term contracts on the fields -- some of Iraq's largest producers -- set for later this year, Argus reports. Another bidding round is expected to take place next year.

Iraq produced about 2.3 million barrels per day in December and intends to hit 2.8 million bpd in two years, a projection based on enhancing currently producing fields. Iraq's oil sector, the third-largest in the world, manages despite years of misuse by Saddam Hussein, U.N. sanctions and the ongoing war. It needs tens of billions of dollars of investment and Iraq's government chronically been unable to invest its own capital budget, lacking institutional capacity.

It has no official oil law, relying on a Saddam-era law and controversial laws of the Kurdistan region. A national oil law has been stuck in negotiations for a year, largely over disputes between the national and Kurdish governments over who controls and directs the country's oil strategy.

The Kurdistan Regional Government passed its own oil law and has signed dozens of contracts to jump start its own promising oil sector. Shahristani calls the deals illegal and said any company who signs with the KRG will be kept out of the rest of Iraq. Oil sales to Korea's SK Energy and Austria's OMV have been halted.

There is also no agreement as to how much access international oil firms should have to Iraq's oil, nationalized since the 1970s.

Along with the oil law, a law governing revenue, reorganizing the Oil Ministry and reconstituting the Iraqi National Oil Company were to be approved, as a package. All are far from approval.

Now Baghdad is moving forward on signing the deals, which are needed to some extent to bring new technology to the sector and training to Iraq's oil workers. But the workers have warned against controversial production sharing contracts or any that takes control of the oil, and too much the profits, from Iraqis.

"National expertise and resources are capable of enhancing production in the oil industry," Hassan Jumaa Awad, president of the umbrella Iraqi Federation of Oil Unions, told United Press International during a visit to London in November, "if they are prepared to allocate more funding and spend the resources that already exist."

A U.S. Government Accountability Office report last month said it was unable to discern how much of the 2007 capital budget Iraq's government spent. It assessed the level of success after a dismal 2006.

The U.S. State Department said Iraq's central government spent 24 percent of its capital budget through July 15, 2007. The U.S. Treasury Department pegs it at 4.4 percent through August.

"The disparity between the different sets of data calls into question their reliability and whether they can be used to draw firm conclusions about the extent to which the Iraqi government has increased its spending on capital projects in 2007, compared with 2006," the report concluded.

Iraq's Oil Ministry, like the rest of Iraq, has seen a brain drain of qualified and trained technocrats. Many have fled the country, were purged during an ethnic cleanse or have been killed.


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