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BP’s Iraq oil deal faces court battle

Daily Telegraph

An Iraqi MP is attempting to derail BP’s flagship deal to develop the giant Rumaila oil field in legal action against the country’s prime minister and oil minister.

By Rowena Mason
Published: 10:32PM GMT 23 Jan 2010

The British oil major and its partner China National Petroleum Corporation won the right to develop the massive Rumaila field in a historic televised oil field auction last June. The contract was formally signed in November.

But amid rising public anger about the foreign “colonisation” of Iraq’s oil fields, Shatha al Musawi, an independent MP, is contesting the prize contract in her country’s federal court.

Iraq’s efforts to boost its oil output could lift it from being the 11th biggest producer to the top three, after years of under-investment and neglect under its former leader Saddam Hussein.

If successful, Mrs al Musawi’s case could set a legal precedent that would invalidate all the agreements that Iraq secured last year – with BP, CNPC, ExxonMobil, Petronas, Royal Dutch Shell, Eni, Gazprom and Lukoil.

The court is due to hear the case next week, on February 1, with Mrs al Musawi arguing that the BP contract violates the constitution on four counts.

She claims that the deals with foreign oil companies need to be properly approved by parliament under Iraq’s constitution. The government contests the allegations and it is trying to get the case thrown out, insisting that its actions were lawful.

Iraq has been preparing to open its oil fields to foreign investment since the end of the war, and plans to raise production from 2m barrels per day to 7m over the next six years.

It wants to ensure that the contracts with BP, Exxon, Shell and others proceed as planned.

However, Mrs al Musawi’s audacious decision to take legal action against her prime minister is a measure of the public anger about the government’s handling of the contracts.

In November, several MPs wrote to the British ambassador in Baghdad claiming that the deal struck directly between ministers and BP had undermined democracy.

Ahmed Mousa Jiyad, a former senior economist for Iraq’s Ministry of Oil and the Iraq National Oil Company, believes the ministers may have trouble proving that they “fulfilled proper, trustworthy and credible deal-making requirements”.

The oil expert, who is now an associate of the Centre for Global Energy Studies working in Norway, has questioned why they agreed the contract without waiting for the opinion of the government legal adviser, who made 65 critical observations in a subsequent memo.

Despite the court case, the first meeting between BP, CNPC and Iraq took place last week.

A spokesman for BP said the company was “aware of the case” and monitoring its progress, but considered it a matter of internal Iraqi politics.

He would not comment further, but sources said the oil group is not expecting any attempts to invalidate the contract to be successful.

BP was the first oil major to secure a long-term contract in Iraq, when it agreed to cut its fee per barrel from $3.99 to $2. Many oil majors were shocked by the fact that Iraq insisted on much lower returns than they are used to being paid.

The Rumaila field, which contains 17bn barrels, is considered one of the world’s prime oil fields.

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