Iraq's Shell Gas Deal Reaches Advanced Stage - Deputy PM

BAGHDAD (Dow Jones Newswires), Feb. 23, 2011

The $12 billion deal between the Iraqi government and Shell to produce gas from southern Iraqi oil fields has reached an advanced stage, Iraq's Deputy Prime Minister for Energy said Wednesday.

"I am happy with the progress of the talks to clinch the deal," Hussein al-Shahristani told reporters in Baghdad. "I am also happy of what has been so far agreed upon in the draft contract."

Al-Shahristani also said the draft deal with Shell and its partner will be soon submitted to the Iraqi cabinet for final approval. "The final decision is left to the cabinet to decide," he added.

The deputy prime minister's remarks on the Shell gas deal contradicted what Iraq deputy oil ministers Ahmad al-Shammaa said earlier. Shammaa said last week that the joint-venture deal was facing legal hurdles and could be delayed for weeks if not months.

Shell would hold 44% of the venture, Mitsubishi Corp. 5% and Iraq state-owned South Gas Co. the remaining 51%. The goal is to capture produced gas at fields near the oil hub of Basra, including Rumaila. Shell in early 2010 finalized contracts with Iraq to produce oil from two super oil fields in southern Iraq.

Al-Shahristani commented that the semi-autonomous Kurdistan region in northern Iraq is now exporting between 60,000 and 70,000 barrels of oil a day after a suspension of nearly a year and a half.

These barrels would be added to Iraq's production capacity which has increased recently to reach an average of 2.75 million barrels a day from less than 2.5 million barrels a day last year, Shahristani said. Iraq would export an average of about 2.2 million barrels a day from this total this year, and use the remaining 550,000 barrels a day to feed Iraq's refineries, he added.

The increase in output is the result of clinching some 12 oil field deals in 2009 and 2010 with international oil companies, including the world's majors. Iraq hopes that these mega projects will help bring its production to at least 8 million barrels a day in 2018.

The deputy prime minister also said that the government would award a contract worth up to $4 billion to build Kerbala refinery, south of Baghdad, with a capacity of 140,000 barrels a day. He said that front-end engineering design for the refinery has been completed. Iraq is planning to build three more large refineries, one in each of Kirkuk, Nassiriyah and Missan provinces.

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