Reuters/Baghdad
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 yesterday. “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. Al-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 700mn cu ft 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, al-Shamma told Reuters. “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. Al-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.Meanwhile, Iraq formally invited international energy firms yesterday to compete for 12 new exploration blocs in a fourth oil and gas bidding round but delayed the auction until January of next year. Officials had previously said the bidding round would be held in November. Iraq expects to add 29tn cu ft of gas and 10bn barrels of oil to Iraqi reserves from the auction. Iraqi Oil Minister Abdul-Kareem Luaibi made the official announcement of the auction yesterday in Baghdad but did not immediately disclose the date of the event. The oil ministry will offer data packages to interested companies in August, and the auction will take place in January 2012, Luaibi said. The contracts for the exploration blocs will be service agreements like those given in previous oil auctions, he said. One of the 12 exploration blocs on offer is in restive northern Nineveh province, another in the southern province of Basra, three in the western desert of Anbar province and seven in other areas of central and southern Iraq. Opec member Iraq sits on the world’s fourth-largest oil reserves and flares around 700mn cu ft of gas every day at its southern oilfields. It needs to harness energy to generate electricity and end chronic power blackouts that still plague the country almost eight years after the US-led invasion. Iraq auctioned three major natural gas fields to foreign firms last October. Iraq’s fourth auction is part of a three-stage plan set by the Oil Ministry to boost proven reserves of oil and gas. “We have set a promising, three-stage plan to start first with offering exploration blocs, second to launch a massive exploration operation through Iraq’s own national capacity, and third, drilling 12 exploration wells (in other areas) across Iraq,” Luaibi said. The plan aims to maintain and increase national reserves to offset the expected depletion of fields developed by international oil firms and offered in the last three bidding rounds, Luaibi added. “This promising plan will considerably boost Iraqi oil and gas reserves,” Luaibi said. Iraq has signed a series of deals with international oil companies in a bid to boost its production capacity to 12mn bpd in seven years, which could make it a close rival to global leader Saudi Arabia. However, most analysts say 6mn-7mn bpd is a more realistic target.