Iraq set for oil deals regardless of law

Iraq hopes to sign oilfield deals with multinationals before the end of the year even if a new oil law has not been passed by parliament, Oil Minister Hussain al-Shahristani said on Monday.

Shahristani told Reuters in an interview the new contracts will be in line with rules and guidelines contained in the landmark draft oil law, which he said had been delayed by political infighting.

"As a responsible ministry, we cannot keep waiting. There is no legislative vacuum. The current laws allow the oil ministry to negotiate with firms and to sign contracts," he said.

"We are going to commit ourselves to the draft (oil law) in signing contracts by having free competition and total transparency and announce contracts which achieve the best interests for Iraq."

Iraq's cabinet first agreed a draft law for dividing the world's third largest oil reserves in February, but disputes with the regional government in Kurdistan, as well as objections from Shi'ite and Sunni Arab politicians, have hobbled progress.

Shahristani said it was not clear when the law will be passed because it is facing political, not technical, hurdles.

"We notice that there are manoeuvres to delay the law from different sides and for different motives," he said.

Major oil companies such as Total, Royal Dutch Shell and Exxon Mobil are positioning themselves to gain access to Iraq's prized oilfields.

While the industry generally prefers long-term production sharing contracts for development, the Iraqi oil minister signalled more restrictive service contracts may be used.

"We have explored fields whose reserves and production rates we know very well so ... this only needs service contracts," Shahristani said."For super giants like northern and southern Rumaila and Zubair, we may only need service contracts."

Shahristani said he hoped the tender process for developing Iraq's oilfields could start before the end of the year.

"We have (also) formed a new office, which is called the office of oil contracts and licenses, and it has prepared contract models and a plan for developing fields," he said.

"Which fields will be listed in the first round and which in the second is under final review. We will begin the first round before the end of this year."

Under the new draft oil law, contracts must be reviewed and approved by a Federal Council for Oil and Gas. The council is expected to be set up after parliament approves the law.

But if the ministry does sign contracts before the law goes ahead, Shahristani said the deals will be presented to the cabinet for approval and foreign companies had no qualms about putting pen to paper.

"I have spoken to big and medium oil firms and they have no reservations in signing contracts with the federal government," he said.

Smaller oil companies have already struck deals with the region of Kurdistan in the north, but Shahristani said those signed after February 2007 were illegal.

The Kurdistan regional government (KRG) signed a contract with a unit of US-based Hunt Oil Co. and with Impulse Energy Corp this month and in April secured a service contract with the United Arab Emirate's Dana Gas.

"All these contracts have no legal base and do not fit with the existing laws, nor with the draft which has been agreed," Shahristani said.

"What worries us about these contracts is their secrecy."

He said only Iraq's State Oil Marketing Organisation (SOMO) has the right to export crude.

"Any other way of exporting crude is illegal and is considered smuggling."

Shahristani said four other contracts signed with the KRG before Baghdad passed a draft oil law in February will be reviewed by the Federal Council for Oil and Gas.

"We hold these firms to be legally responsible ... and we have warned them that they will bear the consequences."

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