Iraq legal obstacles delay $12bn Shell gas deal

Legal hurdles have delayed

Iraq's $12bn deal with Royal Dutch Shell and Mitsubishi to

capture flared gas, but agreement on a final draft contract may

be only a few weeks away, a senior Iraqi oil official said.

"I cannot give a timeframe for when we will finish it,"

Deputy oil minister Ahmed Al Shamma said on Monday. "I expect by

the end of next week we will be very close to settling these

issues and reaching agreement on a final draft deal in order to

refer it to the cabinet."

Officials had expected months ago to formalise the Shell

deal, first agreed in 2008.

Shamma said the lack of modern oil and gas laws was standing

in the way of the deal, which would help Iraq capture some of

the 700 million cubic feet of natural gas now flared at its

oilfields every day.

Iraq needs to capture flared gas to fuel electricity

generation. Eight years after the US-led invasion that toppled

Saddam Hussein, Iraqis receive only a few hours of power a day

from the national grid and the shortage has been a key complaint

at recent nationwide protests.

The transfer of ownership of oil and gas facilities to the

joint venture and the export of produced gas are among the major

sticking points, Shamma said.

"The lack of legislation and the current, valid laws are

standing as a hurdle to reaching a final deal with Shell and

Mitsubishi. This is the major issue which has delayed

the Shell gas deal," he said.

Under a deal, Shell would capture associated natural gas at

oilfields near the southern hub of Basra, including Rumaila,

Iraq's workhorse.

Shamma said current law prevents Iraq from transferring

ownership of facilities to the three-party joint venture and

from exporting gas.

"Now we are discussing a mechanism, and I think it will be

agreed by all parties including Shell, that SOMO (State Oil

Marketing Organisation) will be responsible for exporting the

gas for the benefit of the joint venture," he said.

"But the marketing process - and I mean selecting the

beneficiaries or the buyers - should be done in consensus

between SOMO and the newly established joint venture."

He said a key meeting would be held next week by lawyers

for the parties to "reach an agreement on the final draft deal".

Separately, Abdul Mahdy Al Ameedi, head of the oil

ministry's licensing and contracting office, said he expected

Iraq's cabinet to approve deals for the Siba and Mansuriyah gas

fields this week or next.

Ameedi also told reporters the ministry expected to sign an

initial agreement for the Akkas gas field next month.

Iraq auctioned the three fields last October in its third

bidding round since the 2003 invasion.