1 May 2007
A war of words between Iraqi Oil Minister Hussein al-Shahristani and Kurdish Energy Minister Ashti Hawrami over who has the authority to sign contracts with foreign companies, and over the extent of the proposed new Iraqi national oil company’s control over the country’s oil fields, is threatening to derail the draft oil law approved by the Iraqi cabinet in February.
Al-Shahristani last week warned foreign companies that they should not sign oil and gas deals with any authority other than his ministry until the new Iraqi oil and gas draft law has been approved by parliament. The strongly worded threat came after United Arab Emirates-based Dana Gas signed a service contract with the Kurdistan Regional Government (KRG) to develop the Khor Mor gas field and to appraise the potential of the Chemchemal gas field.
In response, Hawrami attacked fellow members of the oil and energy committee who drafted the oil law, accusing them of circulating annexes to the draft law that he said will leave 93% of Iraqi’s oil reserves in the hands of the future Iraq National Oil Co. (INOC), without prior agreement within the committee.
In a written statement that followed up on criticisms he made at a meeting on the proposed legislation held in Dubai last month, Hawrami warned that unless Kurdish concerns are addressed and his amendments to the annexes are taken on board, “The KRG cannot support any oil and gas law package of legislation.”
Annex 1 of the draft oil law lists 26 fields in production, Annex 2 lists 25 fields that are close to production, Annex 3 names 27 fields that are not near production and could be open to competition from international oil companies and INOC, and Annex 4 sets out 65 exploration blocks.
Hawrami’s criticisms of the future role of INOC focus on what the Kurds see as “massive power concentrated in the hands of INOC without any clear investment and production targets, and without clear accountability.” The federal energy and oil committee is discussing making INOC accountable to the Iraqi cabinet. But Hawrami wants INOC to be accountable to the federal oil and gas council, to be set up according to the draft law.
The Kurdish minister has also suggested major revisions to the four annexes.
Hawrami proposes reclassifying 12 fields from Annex 1 as nonproducing fields and suggests listing seven of them under Annex 3. These include major fields that were negotiated by foreign oil companies in the past, such as Amara, Balad, Halfaya, Khurmala Dome in Kirkuk, Majnoon and Nahr Umar.
Hawrami’s also proposes moving 17 fields from the list of 25 fields in Annex 2 to Annex 3 — either because they are “boundary fields to be decided later,” meaning they could be included under Kurdish jurisdiction, or because he considers they are not close to any producing acreage. These include fields such as Himrin, Makhmour, Mansouriah, Ratawi and Siba. Hawarmi also suggests moving some other fields from Annex 2 to Annex 3, either because, like Demir Dag, the KRG has already negotiated on them or, as in the case of Khor Mor, because they have been signed over to a foreign company by the KRG.
Hawrami is also pushing for Annex 3 of nonproducing fields and the 65 exploration blocks to be classified either as KRG fields or oil ministry fields or boundary fields — to be determined once the official borders of the Kurdish region of Iraq have been agreed.
The KRG minister considers six fields currently in Annex 3 to be boundary fields and reclassifies three others — Chemchemal, Bulkhana and Taq Taq — under Annex 4 because they are already committed by KRG. He also suggests removing 12 of the 65 exploration blocks because they overlap with KRG blocks and considers seven others as boundary blocks.
“The annexes must clearly acknowledge that fields and blocks in the Kurdistan region are under the KRG jurisdiction, that it is for the KRG to define the coordinates of the fields and blocks and that the KRG will be the contracting authority for those fields and blocks,” Hawrami said in his statement.
Under his proposed classification, Hawrami says INOC “would still receive almost 58% of Iraq’s proven reserves.” The rest of the named fields and blocks must be developed under production sharing agreements, he argued, urging the federal government to adopt the Kurdish model of production sharing contracts (PSCs), which he said the KRG will continue using in the Kurdish region of Iraq.
Baghdad oil officials have argued that Iraqi oil fields with known reserves carry very little risk and it is therefore not worthwhile entering into PSCs for such fields.
In addition to the disagreement over the annexes, the law setting up INOC and model contracts, the Kurds are yet to agree on a revenue sharing law with the federal government.
By Ruba Husari, Dubai
(Published in International Oil Daily May 1, 2007)