Kurdish Ministers Woo U.S Oil Firms Regional Bid Angers Iraqi Government

By Steven Mufson
Washington Post Staff Writer
November 28, 2007

Two top Kurdish leaders are a long way from the mountains of northern Iraq this week.

On Monday night, Omer Fattah Hussain was the toast of a dinner held at the 10,000-square-foot McLean mansion of Ed Rogers, a Reagan White House political director and current chairman of the lobbying firm Barbour Griffith & Rogers. In an opulent living room just off an art-filled entryway with a curved double stairway, the deputy prime minister of the Iraqi Kurds' autonomous region mingled with such luminaries as former assistant secretary of defense Richard Perle, former White House aide I. Lewis "Scooter" Libby and former White House press secretary Tony Snow.

Today, Hussain travels to Houston with Ashti Abdullah Hawrami, the Kurdish regional oil minister, to woo an even more important audience: U.S. oil companies.

After more than a year of political deadlock in Iraq over a national petroleum law, the Kurdistan Regional Government unanimously adopted its own petroleum legislation in August. In the past month, it has signed a dozen oil exploration contracts and hopes that foreign firms will ultimately invest $10 billion in the oil sector and bring 1 million barrels a day of new oil production from the Kurdish region over the next five years.

"Everyone is lining up . . . saying 'I want a piece of this action,' " said Hawrami, who hopes to complete negotiations on two more deals in Houston.

Hawrami said the contracts posed no conflict with Iraq's federal constitution. The Iraqi central government, however, is irate over the Kurdish contracts -- and the State Department isn't happy either. The Bush administration has been striving mightily over the past year to get a national petroleum law approved before international firms jump in.

In addition, a group of 60 Iraqi oil professionals signed a letter saying that the recent Kurdish contracts were a "dangerous step that has no legal or political standing whatsoever." Iraqi oil union leaders have also opposed the contracts.

Earlier this month, Iraqi oil minister Hussein Shahristani called the deals illegal. He warned that foreign oil companies that sign contracts with the Kurdish authorities without central government approval risk retaliation when seeking stakes in the bigger oil prospects in the southern part of the country. There are 51 known but undeveloped fields in Iraq.

Several major international oil companies have been talking to Baghdad about resuming work in the same giant southern fields where they had worked when Saddam Hussein was in power. And the central government indicated to them that it might rely on Hussein-era oil laws or offer service contracts if the new petroleum legislation is delayed, according to Kamal Field Aldasri, an economic adviser to the Iraqi government.

Aldasri said recently that the central government wants help in finding ways to boost output at the 27 operating oil fields throughout Iraq, which are producing well below their potential. The Kirkuk field, for example, used to produce almost 1 million barrels a day and now produces less than 200,000. The government's aims to boost production from the current 2.2 million barrels a day to 3 million, though it is running far behind schedule.

The major oil companies have been giving advice, reviewing data and training Iraqi oil workers -- without compensation. Royal Dutch Shell Group, for example, is drawing up a master plan for tapping for domestic consumption the more than 600 million cubic feet a day of natural gas now being burned off. Exxon Mobil, Chevron, BP and Total are also doing technical studies, industry sources say.

But given political uncertainty, legal disputes and security risks, the big international firms are not prepared to reenter the country with their own personnel.

An official of one major oil company, who spoke on condition of anonymity to avoid compromising talks with central or regional Iraqi officials, said: "Frankly, I don't think there are any opportunities at the moment in northern Iraq that are appropriate for a company [of our] size. . . . They're too small."

Smaller firms, however, have rushed to sign exploration and production contracts there. They include affiliates of Russia's Alfa-Access-Renovo group, India's Reliance Industries, the Korea National Oil Corp. and Austria's major oil firm, OMV.

Asked about the absence of major oil companies, Hawrami said TNK-BP had signed a contract. BP said that it was not involved but that its Russian partner had entered the agreement on its own.

Some of the recent signing activity may have begun when Dallas-based Hunt Oil, whose chief executive Ray L. Hunt is a member of the President's Foreign Intelligence Advisory Board and a major contributor to Bush's campaigns, signed a contract in September. Smaller U.S. companies have followed suit.

The Hunt contract upset the State Department, which has been pressing Iraq to adopt a petroleum law that would delineate the division of authority between the central and regional governments.

In a Sept. 28 meeting with the Washington representatives of major oil companies, two State Department officials insisted that the Bush administration's policy was that U.S. companies should not sign separate deals with the Kurdistan Regional Government without approval from the central government in Baghdad.

According to one person at the meeting, the officials warned that some of the blocs being offered by the Kurdish government lay outside its territory and might extend into Turkey or Iran. While conceding that the Hunt deal did not violate any U.S. law, they said it created an "unfortunate and untimely" impression that the U.S. government was changing its position on the need for a national petroleum law.

Reports surfaced nearly a year ago that central and regional authorities were close to a deal on the law, but no agreement has been reached. The key issues in dispute are the types and terms of contracts offered to foreign companies, whether the central or regional governments have the power to sign contracts, what portion of revenue flows to the central government, the composition of a federal commission empowered to review contracts, and whether the committee that distributes oil receipts is part of the central finance ministry or an independent group.

Some Iraqis accuse the Kurdish regional authorities of giving overly generous terms to foreign oil companies in production-sharing agreements. In those agreements, a foreign firm takes on all the risk of exploration but gets a share of production if it finds oil.

Hawrami said the foreign firms would get no more than 15 percent of production under recent contracts and less if the regional government chooses to take a one-quarter stake in the venture after oil is found. He said contracts in relatively peaceful areas would offer smaller percentages to foreign companies.

Production from fields in the Kurdish area would be exported through a pipeline that goes through Turkey, Hawrami said. The pipeline, which has been damaged by frequent explosions, carried 300,000 barrels a day in October, an improvement some industry experts attribute to increased patrols by Kurdish militia and Iraqi helicopter monitoring.

Hawrami said that Shahristani's threats against firms that sign contracts in the Kurdish region were counterproductive and that delays were costing Iraq money. "We don't need his approval," Hawrami said. "Every time we hear the word 'illegal,' we sign two more contracts."