Iraqi Oil Minister Says Energy Strategy Is on Track

BAGHDAD (AFP), Jun. 23, 2009

Oil Minister Hussein al-Shahristani Tuesday defended his strategy for tapping Iraq's vast energy reserves, saying output must increase before new fields can be explored.

Iraq is due to announce which of 31 foreign and state-owned bidders have won deals to operate six major oil fields and two gas fields, for which the government will pay fees rather than share profits, on June 29 and 30.

Shahristani, accused by lawmakers of mismanagement resulting in $10 billion in lost revenue for a federal budget that is projected to go into deficit, said his policy was on track.

"We have started to develop the oil producing fields because it is faster and Iraq is in extreme need to increase its production," said Shahristani."The undiscovered fields need time for drilling.

"If we keep working on our existing fields without digging anew and putting in more effort, production will decrease," he added.

Shahristani did, however, say that unexplored fields will be opened up to bidders in the future.

He also hit back at criticism from Iraq's autonomous Kurdish region, which earlier on Tuesday said Baghdad's policy was "unconstitutional and against the economic interests of the Iraqi people."

The Oil Ministry and Kurdistan are at loggerheads over how foreign companies working to exploit Iraq's vast oil and gas reserves should be paid.

Iraq's decision to award service contracts differs from Kurdistan, where numerous profit-sharing deals have been struck.

"The regional government of Kurdistan has made clear progress in increasing Iraq's oil exports and oil revenues in a short time," it said in a statement.

"This progress has been made by focusing on exploration and not on existing fields, in line with the best practices of international markets, and in accordance with the principles of the Constitution of Iraq.

"The regional government regrets that it cannot say the same thing on the procedures taken by the Federal Ministry of Oil of Iraq," the statement added.

Article 109 of Iraq's constitution says that oil and gas resources must be developed "in a way that achieves the highest benefit to the Iraqi people," in a way "consistent with market principles and that best encourages investment."

Shahristani's critics have accused him of taking an ultra-nationalist approach, possibly deterring investment, by insisting that oil wealth -- meaning profits -- can't be shared with foreign companies.

The service agreement shortlist was first announced by Baghdad in June 2008 and includes global energy giants Exxon Mobil Corp., Royal Dutch Shell PLC, Chevron Corp. and Sinopec, as well as large Iraqi state-owned operators.

The ministry has since repeatedly delayed announcing the bid winners.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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