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Shell agrees landmark Iraqi gas deal worth up to $4bn

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Shell agrees landmark Iraqi gas deal worth up to $4bn

By Ed Crooks and Roula Khalaf in London

Published: September 9 2008 03:00 | Last updated: September 9 2008 03:00

Royal Dutch Shell is to become the first western oil company to sign a deal with the Iraqi government since the US-led invasion of 2003, agreeing a plan to capture and use gas in the Basra region that could be worth up to $4bn (£2.3bn).

It also emerged yesterday that Iraq’s oil ministry had written to oil companies saying it had abandoned its controversial plan to award short-term technical support contracts to a small number of them to work on its oilfields.

Shell’s project is intended to make use of the gas flared off by the oil industry in the south of Iraq. In that region alone, an estimated 700m cubic feet of gas is burned off every day for safety reasons: roughly enough to meet the demand for power generation in the entire country.

The Iraqi government wants Shell to put in the infrastructure to capture that gas and make commercial use of it, both domestically and for export. Assem Jihad, oil ministry spokesman, told the Financial Times that following a green light from the cabinet, the ministry was inviting Shell to Baghdad next month to sign the deal.

“Europe is looking for supplies of gas from Iraq,” said Mr Jihad. “Security used to be a deterrent but now companies feel that security has improved and this will encourage others to come in.”

He added that the project would be run as a joint venture, with Shell taking 49 per cent and the oil ministry 51 per cent. The length and value of the contract have yet to be determined but reports in Iraq suggested it could be worth $3bn-$4bn.

Shell said: “We are delighted with the government’s decision and look forward to signing the agreement in the near future.”

The Shell deal follows news last month that Iraq had revived a big oil deal first negotiated between China and the government of Saddam Hussein, for China National Petroleum Corp to develop the al-Ahdab oilfield.

That deal represented the first important commitment to Iraq by a foreign company since its industry was nationalised in 1972. However, Iraq has cooled on its plan to sign deals with a few western oil companies, including Shell, ExxonMobil and BP, to offer technical support and advice on its biggest fields.

Mr Jihad said that after delays and differences with the companies over the length of contracts, the ministry was now inclined to bypass that stage and focus on longer-term development contracts.

Copyright The Financial Times Limited 2008

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