World's Energy

September 11, 2008 - IHT by Andrew E. Kramer and Campbell Robertson - An Iraqi plan to award six no-bid contracts to Western oil companies, which drew sharp criticism from several U.S. senators this summer, has been withdrawn, participants in the negotiations said. The companies confirmed Wednesday that the deals had been canceled. This was one day after the Iraq oil minister, Hussain al-Shahristani, said at an OPEC meeting in Vienna that the talks had dragged on for so long that the companies could not do the work on schedule. The contracts, with Exxon Mobil, Chevron, Royal Dutch Shell, Total, BP and several smaller companies for one-year deals, were announced in June and then delayed. While not particularly lucrative by industry standards, the contracts were valued for providing a foothold in Iraq at a time when oil companies were being shut out of energy-rich countries around the world. The companies will still be eligible to compete for other contracts in Iraq. The six no-bid deals were for work to increase Iraqi oil production from existing oil fields by half a million barrels a day - the same amount by which the Organization of Petroleum Exporting Countries agreed to reduce output at its meeting Tuesday. After its cancellation of the deals, Iraq reduced by 200,000 barrels a day its goal of producing 2.9 million barrels a day by the end of the year. The contracts would have been the first major oil agreements with the central government since the toppling of Saddam Hussein in 2003, though the Kurdistan region has separately signed more than 20 contracts. Recently, however, Iraq's central government has moved on with other energy deals. The Oil Ministry in August signed its first major post-Saddam-era contract with China National Petroleum. On Sunday, the Iraqi cabinet approved a deal with Shell to process natural gas in southern Iraq. The ministry informed the oil companies of the cancellation Sept. 3, according to a statement from Shell. In Vienna, Shahristani said the ministry would now invite bids on the contracts. Shell said the Iraqi side had broken off negotiations. This summer, a group of Democratic senators led by Charles Schumer of New York appealed to Secretary of State Condoleezza Rice to block the deals, contending that they could undermine the efforts of Kurds, Sunnis and Shiites to reach an agreement on a hydrocarbon law and a revenue-sharing deal. This criticism was conveyed to Shahristani by the U.S. Embassy in Baghdad in June, and the deals were subsequently delayed. "I'm glad the Iraqis heard our plea that to do this now would be bad for Iraq and bad for Iraqi-American relations," Schumer said by telephone Wednesday. "It's a good first step." "Now let's make progress on the long-term" goal of passing an oil law, he said. The State Department had responded that the contracts were an Iraqi affair, though American advisers had helped draft them. Meanwhile, the ministry has said it intends to go forward with new oil deals, whether or not Parliament passes a hydrocarbon law. Schumer said he would propose an amendment to the military appropriation bill in Congress that would specify that should Iraq sign any petroleum contracts before passing the law, profits from those deals would be used to help defray U.S. reconstruction costs in Iraq.