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Iraq Considers Giving Foreign Oil Investors Better Terms

Published: March 18, 2009

BAGHDAD — To attract badly needed investments to increase its oil production, the Iraqi government is considering new incentives for foreign companies, including plans to offer majority stakes in joint ventures to develop the country’s huge oil and gas fields, senior Iraqi officials said Wednesday.

Foreign companies could own as much as 75 percent of the new ventures, the officials said. In its negotiations with dozens of international companies, including Exxon Mobil and Royal Dutch Shell, Iraq had until now offered stakes of no more than 49 percent in new joint ventures to develop existing and new oil fields.

Under a formal process created last year, companies have been asked to bid openly for the right to take part in expanding Iraq’s oil production. But many companies have been skeptical of the country’s terms, saying they lacked enough incentives. At the same time, Iraq’s improved security has meant that foreign companies are eager to invest in the country after decades of wars and sanctions kept them out.

Iraq’s oil minister, Hussain al-Shahristani, addressing a conference hosted by OPEC in Vienna on Wednesday, also suggested for the first time that Iraq would consider allowing foreign companies to share directly in the profits from oil production, rather than the fixed fees in the joint ventures that are now offered.

This arrangement, known as a production-sharing agreement, would apply to new and riskier exploration; it, too, would offer additional incentives to foreign investors and allow them to recoup their investments faster.

Thamir Ghadhban, chief of advisers to Prime Minister Nuri Kamal al-Maliki of Iraq, and a former oil minister, confirmed Mr. Shahristani’s remarks.

There has been stiff opposition in Parliament from many political parties to any foreign investment, much less the idea of letting foreign companies own majority stakes in joint ventures. Even a proposed contract with Shell for producing natural gas in southern Iraq, which would give Shell a 49 percent share, was condemned in Parliament.

Deputy Prime Minister Barham Salih, who led an Iraqi government review on reforming the oil sector, said that giving foreign companies more incentives was long overdue. “It’s acknowledged almost universally that the present oil policy and management has been a disaster,” Mr. Salih said.

In addition to the formal bidding process established last year, Iraq has been negotiating directly with a handful of international companies to increase production from existing oil fields, Mr. Ghadhban said. The first such field is likely to be Nasiriya, which Iraq had planned to develop itself. The government is in discussions with Eni of Italy, Repsol of Spain and Nippon Oil of Japan, Iraqi officials have said.

The review of oil policy, completed March 1, called for rethinking the ban on production-sharing agreements. “The status quo is unacceptable,” Mr. Salih said.

Ibrahim Bahr al-Ulum, Mr. Maliki’s oil adviser, said there was now broad agreement that Iraq needed new approaches to attract more interest from foreign oil corporations. “But what those paths are we left to be decided,” Mr. Ulum said.

He said that he was unaware of Mr. Shahristani’s statements on Wednesday, but that the idea of offering a majority stake to a foreign company would be contentious. “This is very complicated and very sensitive,” he said.

Iraq is not proposing to offer ownership stakes in oil or gas fields to foreign companies; the country’s new constitution would forbid this. Rather, international companies would own a larger share of the joint companies that would be created to develop and exploit the fields.

Mr. Shahristani could not be reached for comment.

Because of falling oil prices, Iraq has had to sharply decrease its budget. Mr. Shahristani said this contributed to a need “for an immediate increase of additional production.” Iraq produces 2.4 million barrels of oil a day and hopes to increase production to 6 million barrels a day within five to six years, Mr. Shahristani said. He estimated that the additional production would require an investment of $50 billion.

In the past, Mr. Shahristani opposed any suggestion of production-sharing agreements with foreign oil companies. He softened that stand on Wednesday.

“We are not ruling out completely production-sharing agreements, but this will most likely be for exploration fields that have not been discovered and assessed yet,” he said in Vienna. “We are considering offering these in a bid round sometime this year. There are 65 blocks with fairly good chances of discovering oil and gas in Iraq.”

Rod Nordland reported from Baghdad, and Jad Mouawad from New York. Alissa J. Rubin and Abeer Mohammed contributed reporting from Baghdad. and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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