Iraq legal obstacles delay $12 billion Shell gas deal

Legal hurdles have delayed Iraq’s $12 billion (7.3 billion pound) deal with Royal Dutch Shell and Mitsubishi to capture flared gas, but agreement on a final draft contract may be only a few weeks away, a senior Iraqi oil official said.

“I cannot give a timeframe for when we will finish it,” Deputy Oil Minister Ahmed al-Shamma said on Monday. “I expect by the end of next week we will be very close to settling these issues and reaching agreement on a final draft deal in order to refer it to the cabinet.”

Officials had expected months ago to formalise the Shell

deal, first agreed in 2008.

Shamma said the lack of modern oil and gas laws was standing in the way of the deal, which would help Iraq capture some of the 700 million cubic feet of natural gas now flared at its oilfields every day.

Iraq needs to capture flared gas to fuel electricity generation. Eight years after the U.S.-led invasion that toppled Saddam Hussein, Iraqis receive only a few hours of power a day from the national grid and the shortage has been a key complaint at recent nationwide protests.

The transfer of ownership of oil and gas facilities to the joint venture and the export of produced gas are among the major sticking points, Shamma told Reuters.

“The lack of legislation and the current, valid laws are standing as a hurdle to reaching a final deal with Shell and Mitsubishi. This is the major issue which has delayed the Shell gas deal,” he said.

Under a deal, Shell would capture associated natural gas at oilfields near the southern hub of Basra, including Rumaila, Iraq’s workhorse.

Shamma said current law prevents Iraq from transferring ownership of facilities to the three-party joint venture and from exporting gas.

“Now we are discussing a mechanism, and I think it will be agreed by all parties including Shell, that SOMO (State Oil Marketing Organisation) will be responsible for exporting the gas for the benefit of the joint venture,” he said.

“But the marketing process — and I mean selecting the beneficiaries or the buyers — should be done in consensus between SOMO and the newly established joint venture.”

He said a key meeting would be held next week by lawyers for the parties to “reach an agreement on the final draft deal.”

Separately, Abdul-Mahdy al-Ameedi, head of the oil ministry’s licensing and contracting office, said he expected Iraq’s cabinet to approve deals for the Siba and Mansuriyah gas fields this week or next.

Ameedi also told reporters the ministry expected to sign an initial agreement for the Akkas gas field next month.

Iraq auctioned the three fields last October in its third bidding round since the 2003 invasion.