Iraqi Govt Won't Recognize Kurdistan Oil Contracts

AMMAN Sep 25, 2006 (Dow Jones Newswires)

Iraqi Oil Minister Hussein al-Shahristani said in remarks published Sunday that the federal government in Baghdad won't recognize oil contracts signed recently by officials of the Kurdistan Regional Government.

"The (oil) ministry isn't committed to oil investment contracts signed in the officials from the Kurdistan Regional Government which were announced as contracts to develop oil fields," Shahristani told the state-run al-Sabaah newspaper.

The federal minister was referring to a number of contracts signed recently by the KRG and international oil companies.

The KRG has signed production-sharing agreements with companies including Norwegian oil company Det Norske Oljeselskap DNO ASA (DNO.OS), which is already drilling for oil, and Turkey's PetOil and Genel Enerji. It has also signed a memorandum of understanding with Australia's Woodside Petroleum (WPL.AU) and Heritage Oil and the U.K.'s Sterling Energy.

Shahristani also said the ministry wouldn't recognize oil investment contracts signed in the past by oil ministry officials. It isn't clear, however, whether the minister meant a number of contracts to develop medium-size oil fields signed after the U.S.-led war or those signed during Saddam's rule.

After the U.S.-led war Baghdad signed contracts to develop the Khormala Dome oil field in northern Iraq, the Hemreen oil field in the center and the Suba/Luhas oil field in the South. All of them are medium-size oil fields.

During Saddam's rule, Iraq signed a contract with China to develop the giant al-Ahdab oil field in southern Iraq. It also signed a contract with Russia's Luckoil to develop Majnoon oil field, but it was cancelled in 2002 because the company failed to start work on the field. Several other contracts were also signed with international companies to develop other oil fields.

Successive Iraqi oil ministers, including Shahristani, said after the U.S.-led war in 2003 that contracts signed during Saddam's rule are null and void.

Shahristani said a new oil and gas law that is expected to be approved by the Iraqi parliament by the end of this year "would solve all problems concerning oil contracts signed in the past."

Earlier this month, the KRG's oil minister, Ashti Hawrami, said in London that his government is set to sign more oil contracts with companies next month.

If that is going to happen, it will further provoke ire in Baghdad. The federal government has long held that contracts signed without the approval of the central government should be declared void.

The KRG estimates northern Iraq's oil reserves around 45 billion barrels of oil and 100 trillion cubic feet of gas.

Oil companies are attracted to Kurdistan because of its relative safety and high levels of security compared with the rest of Iraq where it is virtually impossible for foreign oil companies to work.

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