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Friday, 09 January, 2009, 01:40 GMT | more >>

Iraqi law 'to favour Western oil companies'



By Upstream staff 

A long-awaited Iraqi law covering investment in the country's oil sector will be based on production-sharing agreements (PSAs) favouring Western oil companies, a UK newspaper reported.

The Independent on Sunday said a draft of the law it had obtained showed that major companies investing in Iraq, including Shell, BP and Exxonmobil, stood to gain rights to Iraqi oil for up to 30 years.

It said the US had been deeply involved in the drafting of the law.

The newspaper said the draft dated from July last year, but that it understood the proposed legislation had not changed much since then.

A PSA-based law would be at odds with the situation in major Middle Eastern producers, including Saudi Arabia and Iran, where production is in the hands of state-owned companies and foreign participation is often restricted.

Production-sharing arrangements could guarantee profits for foreign companies while offering little in revenues to the country itself, critics of the draft said, and would add fuel to claims that the US and the UK attacked Iraq to secure its oil reserves for Western companies.

However, oil executives and analysts told the newspaper that such agreements were the only way to reinvigorate the country's oil sector after decades of underinvestment.

The draft is reported to contain provisions allowing oil companies to take up to 75% of profits until they had covered their initial drilling costs. After that, foreign investors would earn about 20% of profits.

However, the newspaper said this was twice the industry average for PSAs.

The adoption of PSAs favouring foreign investors in Iraq would come as many other countries are seeking to increase the proportion of revenues they receive under deals with foreign investors. Russian recently forced a Shell-led consortium to renegotiate an agreement to give its gas monopoloy Gazprom a stake in a giant natural gas project on Sakhalin Island.

Under the original deal, Russia would have had to have waited for the foreign investors to recoup their entire investment in the project before taking a share in revenues from the project.

The US government estimates Iraq's oil reserves at 112 billion barrels, the second-largest in the world.

Details of Iraq's oil law are expected to be made public within the next few days.

Monday, 08 January, 2007, 21:06 GMT  | last updated: Monday, 08 January, 2007, 21:22 GMT

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