Iraq Official: No Cooperation with Oil Companies Over Kurdish Deals

BAGHDAD, Jan 17, 2008 (Dow Jones Newswires)

The Iraqi Oil Ministry has decided to stop cooperating with international oil companies participating in production-sharing contracts with the Kurdish regional administration in northern Iraq, an official said Thursday.

The decision is considered a first step toward implementing the ministry's threats to blacklist and exclude these companies from any future deals with Baghdad if they refuse to abandon their oil deals with the self-ruling Kurdish government.

The following companies are thought to have agreements with both Oil Ministry and with Kurdistan: the United Arab Emirates' Crescent, Canada's Western Oil Sands and Heritage Oil Corp. (HOC.T), India's Reliance Industries Ltd. (500325.BY) and Austria's OMV AG (OMVKY).

The Kurds are a key group within the national governing coalition and have been Washington's most reliable allies in Iraq. Since the ouster of Saddam Hussein they have forged a close relationship with the majority Shiites.

But assertive acts by the Kurds, such as the refusal to fly the Iraqi national flag in the region, have irritated the Shiite-dominated government in Baghdad as well as Sunni Arabs. Many see such gestures and the recent oil deals as a threat to the country's national unity.

The Oil Ministry's decision came days after 145 Iraqi Arab lawmakers from rival sects joined forces to criticize what they say is overreaching by the Kurds, alleging the powerful U.S.-backed minority's go-it-alone style threatens national unity. They took issue with Kurdish ambitions in the disputed northern city of Kirkuk and in negotiating deals with foreign oil companies without involving the central government.

With the national oil and gas law stuck in dispute between the Kurds and Arab leaders over who has the final say in managing oil and gas fields, the Kurds have signed 15 production-sharing contracts with 20 international oil companies. The Oil Ministry considers those contracts illegal.

As of Dec. 31, the Oil Ministry ended South Korea's SK Energy's (096770.SE) term contract to import Basra crude oil because it refused to abandon its exploration project in Kurdistan as part of a consortium led by the state-run Korea National Oil Corp.

Another aspect of cooperation being halted is the one-year memorandums of understanding the ministry has signed with about 40 international oil companies since 2004, including those companies believed to have signed oil deals with the Kurdish regional administration.

Under these memorandums, which are up for renewal every year, companies offer the Oil Ministry free technical support for specific oil and gas fields and some provide training for ministry staff.

In return, the ministry provides data on the fields for which it was seeking help, though these memorandums aren't considered a commitment to awarding these fields to the companies in the future.

"They will be canceled as well," added the unnamed official.

A spokeswoman for Reliance Industries said the company hasn't received any official communication from the Iraqi government. She said the company hoped any possible issues will be resolved without affecting business.

Last year, the Iraqi-owned, UAE-based Crescent signed a series of deals with Kurdistan through subsidiary Dana Gas (DANA.AD).

Canada's Heritage Oil signed a deal with Kurdistan last October for the Miran Block in Sulaimaniyah province. Western Oil Sands is working on three structures in Kurdistan's Zagros Fold Belt, under an agreement signed in mid-2006 and ratified in March.

Another production-sharing contract was signed last November between Reliance and the Kurdish regional government for the Rovi and Sarta Blocks through Dubai-based subsidiary Reliance Exploration and Production.

Also in November, Austria's OMV signed similar contracts for the Mala Omar and Shorish Blocks in the Irbil area.

BAGHDAD, Jan 17, 2008 (Dow Jones Newswires)