Congress pressing Bush to block, reverse Iraqi Oil Deals

By BEN LANDO, UPI Energy Editor
Published: June 24, 2008

WASHINGTON, June 24 (UPI) -- U.S. congressional leaders are pressing the Bush administration to block deals to be signed between the Iraqi federal government and the world's largest oil companies and to cancel deals between the Iraqi Kurdish region and smaller U.S. oil firms.

Sens. Charles Schumer, D-N.Y., John Kerry, D-Mass., and Claire McCaskill, D-Mo., want the United States to dam negotiations on contracts the senators claim will, in part, further sectarian fighting.

United Press International has also obtained a letter from Senate Committee on Armed Services Chairman Carl Levin, D-Mich., to President Bush's national security adviser Stephen Hadley, asking the administration to press Hunt Oil and other U.S. companies to cancel their oil deals with the Kurdistan Regional Government of Iraq.

The Iraqi Oil Ministry is negotiating two-year, technical support contracts -- also being called technical service contracts -- with Shell, BP, ExxonMobil, Chevron, Total, BHP Billiton and a consortium led by Anadarko. The deals, the scope and price of which have not been made public, are presumed to be worth $500 million each and provide technology, training and equipment to six key oil fields in Iraq, according to past ministry statements.

Each field would increase production by 100,000 barrels per day. The companies would likely not send any workers to Iraq. Shell, BP, Exxon and Total were part of the Iraq Petroleum Co., which controlled Iraq's oil sector for decades before being kicked out in the 1960s and 1970s.
International oil companies have been providing free training to Iraq's oil workers, and Iraq has signed contracts with companies to provide engineering, procurement and other oil field services. This and an increase in security for the northern pipeline have allowed Iraqi oil production to grow to 2.5 million barrels per day, according to the Oil Ministry's May averages. Exports crossed the 2.1 million bpd mark, a record since the 2003 invasion.

Iraq has the world's third largest oil reserves, capable of handling higher volumes than current output. But the sector needs to recover from decades of war, Saddam Hussein's mismanagement and sanctions. The ministry has decided to first move on these six contracts, and is readying for a bidding round for an undisclosed number of oil and gas fields later this year.

In a separate letter to Secretary of State Condoleezza Rice, Schumer and Kerry called for Iraq to pass legislation governing the oil sector first.

"We ask that you work with the (government of Iraq) to ensure that they do not sign any agreements relating to oil or gas until they have passed a fair, equitable and transparent hydrocarbon revenue sharing agreement that benefits the Sunni Arabs, Shia Arabs, Kurds and all other Iraqi citizens," the senators wrote.

Without a new law, Iraq is relying on regulations left over from Saddam. A draft oil law has been stalled in Parliament by internal Iraqi disputes over the extent foreign oil companies should be allowed into the national oil sector and how much control over the oil strategy will be given to local governments. Three companion laws -- revenue sharing, reconstituting the national oil company and reorganizing the Oil Ministry -- are further behind in the legislative process.
Iraq is already splitting revenue by compromise between factions. Schumer, Kerry and McCaskill in a short press conference Tuesday said without a revenue sharing law the oil deals will cause more fractures.

"You can't blame Iraq for the desire to expand oil production," Schumer said. "However, signing oil contracts without a revenue sharing law is a recipe for disaster."

The three warned against possible perceptions that the war was fought to benefit international oil companies, and that no-bid contracts were not transparent.

"We can confirm that negotiations between Shell and representatives of the Ministry of Oil regarding technical service agreements are ongoing. However, we regard further details as confidential," said Shell spokesman Adam Newton, adding the company has no comment on the senators' demands.

"If the Iraqi government decides it wants international oil companies to partner with them in developing their resources, ExxonMobil would be interested in participating," said Exxon Manager of Upstream Media Relations L.A. D'Eramo. "Consistent with our long-standing global business strategy, ExxonMobil would pursue business opportunities as they arise in Iraq, just as we would in other countries in which we are permitted to operate. With that noted, at this time it would be premature to discuss specifics about any potential opportunity with Iraq."

"We have a memorandum of understanding with the Iraqi government whereby we have provided free technical advice," said Anadarko Manager of External Communications John Christiansen. "However, we do not intend to pursue additional interests at this time."
The other companies couldn't be reached or couldn't provide comments before the article was published.

"We welcome Iraq's decision to negotiate with companies on these contracts, as we believe that commercial partnerships with private companies will accelerate Iraq's ability to develop its oil and gas resources," said State Department Iraq Press Officer John Fleming, though the State Department has not seen the senators' letter and wouldn't comment on it directly.

"The Ministry of Oil has been developing relations with about 40 international oil companies since 2004," he said, adding the U.S. government "is not playing any role in the Ministry of Oil's commercial negotiations."

The senators said the administration should use the contracts as leverage to press Iraq to pass the oil and revenue sharing laws. When asked whether this contradicts the sovereignty of Iraq, they said U.S. efforts in Iraq -- and troops on the ground -- make the oil deals an American concern.

"If it's in Iraq, it's not a private sector matter," McCaskill said.

This is the first public outcry by Congress over oil deals in Iraq. The six contracts were first made public late last year, and Iraq's Kurdistan Regional Government has signed 20 exploration and production deals since 2004.

Schumer, Kerry and McCaskill fielded three questions before ending the press conference.
Kerry, responding to reporters' shouted questions, said, "The Kurds are separate and independent."

Dallas-based Hunt Oil is the most prominent of the half-dozen U.S. firms that signed deals with the KRG. The deals are controversial because the regional government claims a constitutional right, which is disputed by Baghdad.

Levin, in his June 5 letter to Hadley, said the KRG deals are hurting reconciliation efforts within Iraq, including on the oil law.

"I believe the administration should request Hunt Oil, and other U.S.-based oil companies, to withdraw from any (production sharing contract) they have signed and to advise the KRG that they are doing so in order to facilitate the passage of national hydrocarbon legislation," he wrote.

"We've received the letter and are reviewing it," said National Security Council spokesman Gordon Johndroe. "We'll get back to the senator in the coming days."

Hunt Senior Vice President for Corporate Affairs & International Relations Jeanne Phillips, when asked about the letter, said, "We would never presume to comment on correspondence between a member of the United States Senate and other government agencies."

Levin also questioned whether the State Department warned Hunt Oil against signing the deal, saying he received differing versions of communication from the company and the State Department.

"The clear inconsistency between the State Department and Hunt Oil in their accounting of the meetings leading up to the company's signing of a (production sharing contract) with the KRG is deeply troubling," Levin wrote.

"We continue to advise companies that they incur significant political and legal risk by signing contracts with any party before a national law is passed by the Iraqi Parliament," said Fleming of the State Department. "It is in the interest of all Iraqi parties to enact a set of national laws to govern the oil and gas industry, and to develop an equitable revenue sharing system.

"All companies which have spoken with the United States government about investing in Iraq's oil sector have and will continue to be given the same advice," he said.
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(e-mail: blando@upi.com)
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