BAGHDAD (February 29, 2008) — More than 100 companies including foreign majors are vying for deals to tap Iraq’s vast oilfields, but a vital oil law is stalled by tension involving the Kurdish region, Baghdad’s oil minister said Friday.

Hussain al-Shahristani told Reuters that 115 companies had registered to compete for oil extraction and service contracts to help develop Iraq’s oil reserves, the world’s third largest. Of these, 10 were American, with companies also from Japan, Russia, Britain, Canada and South Korea.

A ministry official had previously put the number at companies that registered by a Feb. 18 deadline at more than 70.

Shahristani said Iraq was close to finishing negotiations with several oil majors for two-year technical support contracts that hopefully would be signed in March. Those majors included Royal Dutch Shell, BP, Exxon Mobil Corp, Total and Chevron Corp, he said.

Iraq currently exploits only a fraction of its reserves, among the cheapest to produce in the world, and international oil companies have been positioning for years to gain access. Shahristani said the fields up for grabs under the extraction and service contracts included Iraq’s giant fields in the south along with Kirkuk in the north.

He said the qualified companies would be announced in March. “From announcing the qualified companies to the signing of the contracts will take a minimum one and a half or two years, but we will try to make it within a year,” he said.

Shahristani said he hoped the technical support contracts would add 500,000 bpd of oil to Iraq’s output in a year. “We are negotiating with these five companies. We are at the end of the negotiations,” Shahristani said, referring to the five majors. “They will study the fields with us, we will put together a plan to boost production, they will help us to select the equipment and deliver this equipment to us.”

Iraq produces about 2.5 million barrels of oil a day, dwarfed by its 115 billion barrels of proven crude oil reserves. Only those of Saudi Arabia and Iran are larger.

One oil official said last year Iraq’s oil sector could need as much as $75 billion in investment.

FOOT IN THE DOOR
The extraction and service contracts should add 1.5 million bpd to output once they were in place, Shahristani added.

Combined with the additional flows from the technical support contracts, Iraq’s output would hopefully rise to 4.5 million bpd in five years, he said. Of this total, 3.5 million bpd would be exported and the rest kept for domestic use.
Shahristani said the technical support contracts did not entitle those companies to any share in production.

“The benefit is that they will show interest in cooperating with Iraq and supporting us technically. They will have knowledge of the parameters of the fields and then they can … make us an offer which is better than others,” he said.

The service and extraction contracts are also seen as a stop-gap until a crucial oil law is passed, and will not provide the long-term involvement big oil companies crave. But the draft law remains stalled in parliament, with no sign of any movement, Shahristani said.

Shahristani said he believed a major obstacle to the law passing would be the signing of oil deals between the government in the largely autonomous Kurdistan region in the north and some smaller foreign energy companies.
Iraq’s cabinet agreed to the draft a year ago. “There haven’t been any developments on the oil law. The draft agreed on in February 2007, including the four appendixes, is the one with parliament,” Shahristani said.

He said some 20 contracts signed by the KRG after February 2007 were illegal, adding companies that had done so would be prohibited from competing in central government deals. “The contracts should be cancelled to convince the parliament blocs that everybody is serious in committing to this law … if it stays the way it is, the parliament will not pass it,” Shahristani added.

(Writing by Dean Yates, editing by Anthony Barker and David Gregorio

US Urges Iraq to Seize Chance to Revive Economy
Reuters

WASHINGTON (February 29, 2008) — Iraq must seize on the opportunity created by improved security to push ahead with economic reforms and Washington will help by sending more technical experts, a US Treasury official said on Friday.

After a two-day visit to Baghdad, David McCormick, Treasury undersecretary for international affairs said Washington would increase the number of technical economic staff helping the Iraqi government with this from 4 to 12.

“There is a universal recognition that there is a window of opportunity on the economic reform side that has been created by the improvement in the security situation,” McCormick said. “It is particularly critical that the Iraqi leadership seize the opportunity that is provided on the economic side… whether we’re talking about investment, budget execution or reform,” he added.

The amount of violence in Iraq decreased last year after President George W. Bush sent in thousands of extra troops. This created hope that more attention could be paid to reviving the economy after years of mayhem prompted by the 2003 US-led invasion.

McCormick said Iraq had met economic targets under an International Monetary Fund program in the past year. But more progress was needed, especially on improving budget spending, tackling corruption and rebuilding the banking sector to support private sector investments.

McCormick praised the Iraqi government for expressing an interest in a global program, the Extractive Industries Transparency Initiative, EITI, that encourages transparency in oil and mining sectors in developing countries.

He said the Iraqis also had established an investment commission to move forward an ambitious public investment program hampered by violence plaguing the country last year. “There is a recognition of the need to bring further clarity and transparency to the investment climate in Iraq,” McCormick added.

(Reporting by Lesley Wroughton; editing by David Storey)