IRAQ OIL MINISTER OUTLINES PLANS TO U/S JEFFERY

C O N F I D E N T I A L BAGHDAD 000656 SIPDIS SIPDIS STATE FOR E, NEA, AND EEB DOE FOR GEORGE PERSON AND ALAN HEGBERG E.O. 12958: DECL: 03/04/2018 TAGS: ECON EPET IZ SUBJECT: IRAQ OIL MINISTER OUTLINES PLANS TO U/S JEFFERY Classified By: CETI Ambassador Charles Ries, reasons 1.4 b,d ¶1. (C) SUMMARY: Minister of Oil (MOO) Shahrishtani, in a February 25 meeting, told Under Secretary of State Jeffery that the MOO and the Cabinet are prepared to proceed with the February 07 draft hydrocarbon law (HCL),but said that the Kurdish Regional Government (KRG) should cancel its post-February 2007 Production Sharing Agreements (PSAs). He added that the KRG is now questioning the constitutionality of the February draft and should come to Baghdad to present their position. The Minister said that the MOO intends to sign technical service agreements in March "with whoever is ready." With respect to longer term contracts, he said the Ministry has received 109 applications to prequalify for a bid round for further developing specified super-giant oil fields. He noted that the MOO was meeting regularly with the Ministry of Electricity (MOE) to coordinate the supply of fuel for electric generating plants. Shahristani stated that within two months the MOO will add up to 100 million standard cubic feet per day (MMSCFD) of new natural gas production in the south for MOE. By the end of this summer the MOO would be able to supply the MOE with essentially all its Baghdad generating plants' fuel requirements. Finally, Shahristani said that the MOO's highest priority capital project was building the single point mooring (SPM) facility in the Gulf. This would provide added export capacity and provide needed redundancy to MOO's current oil export facilities at ABOT. -------------- HYDROCARBON LAW -------------- ¶2. (C) Shahristani said that the GOI is ready to send the February 2007 draft HCL to the Council of Representatives (COR) once the KRG agrees, and cancels post-February 2007 PSAs. He added such an agreement with the KRG would be difficult to accomplish since the KRG's Natural Resources Minister, Ashti Harawmi, has publicly questioned the constitutionality of the February 2007 draft itself. Additionally, Shahristani pointed out that oil produced in the KRG area by Norway's DNO was improperly being sold without MOO authorization. The Minister suggested the initial step needed for the HCL issues to be resolved and the law enacted was for the KRG to propose its final position to the GOI's Energy Committee and to cancel its post-February 2007 PSAs. He said a KRG delegation is expected to come to Baghdad the week of March 3 to discuss these issues with Prime Minister Maliki. -------------- INTERNATIONAL OIL COMPANY AGREEMENTS -------------- ¶3. (SBU) The Minister stated that since the GOI could not afford to wait indefinitely for the passage of the HCL, the MOO was proceeding with plans to award TSAs (2 year contracts, renewable for 1 additional year) in March to several major international oil companies (IOCs) to perform advisory work outside of Iraq on existing fields. At the same time, he was in the process of prequalifying companies for a bid round he planned to announce later this spring to further develop six super-giant producing oil fields in southern Iraq, as well as the Akkas gas field in Anbar Province. He expressed confidence that this was a good step towards the MOO's goal of increasing Iraq's production over the next ten years to 6 million barrels/day "with or without" passage of the HCL. Shahrishtani described MOO's bidding procedure as having several steps. The list of MOO-approved bidders would be announced in March and the first round of bids would begin in April or May. He thought MOO would be able to award the contracts by late 2008. He said that the MOO hasn't decided on the form of the contract, but each field's contractual arrangement, he said, will be in the form of a joint venture (JV) between the National Oil Company (or the MOO) and the winning bidder. In cases where the major IOC previously working on the field's development is not the winning bidder, it will be able to farm-in to part of MOO's share of the JV under the same terms agreed to by the winning bidder. Shahristani noted that the IOCs would could utilize their efficient logistics systems outside of Iraq to order and supply goods and services for the actual field work in Iraq. The IOCs, in some cases, could be paid in crude as reimbursement of their sunk costs and other contractual rights. The Minister said that the DFI would be informed of all sales made and the price received. He added that the precise payment mechanism hasn't yet been decided on. Later bid rounds would involve Iraq's exploratory acreage and certain fields near the borders of Iran and Kuwait, respectively. Finally the Minister explained that the MOO was finalizing a new agreement with China's CNOOC to replace its previously awarded production sharing contract with a contract similar to what he envisaged for the aforementioned bidding round. -------------- COORDINATION BETWEEN MOO AND MOE -------------- ¶4. (SBU) Shahristani explained that there are weekly meetings between MOO & MOE at the Deputy Minister level. Moreover, MOO will soon add between 50,000 and 100 MMSCFD of gas in the south, that is currently being flared, to supply MOE's generating plants south of Baghdad. By the end of this summer, he said, the Musayib topping plant and generating facility will be completed and supplied with fuel, thereby adding to MOE's generating capability for south Baghdad. Moreover,the MOO was repairing the Bayji-to-Baghdad gas pipeline, thereby allowing northern gas to help meet the MOE's requirements. Deputy Minister Al Shama added that the Ministry planned on drilling an additional 7 new wells and recomplete 8 others in the East Baghdad Field which if successful would raise the field's production to 30,000bb/d. This additional capacity depended on MOO's Northern Oil Company releasing several of the 8 stacked drilling rigs at Kirkuk for use in the south as well as MOE's doubling its Qudus generating capacity. -------------- SPM AND OTHER MOO PROJECT PRIORITIES -------------- ¶5. (SBU) Sharistani said that the MOO's highest priority for capital investment is currently installing a Single Point Mooring System (SPM) offshore near ABOT. Dep. Minister Al Shama was heading to Paris on February 26 to negotiate a contract for the underwater survey, a prerequisite for the SPM design-build contract. EMIN noted that the USG was funding the $1.5 million for this survey. Shahristani pressed Al Shama to complete the work as soon as possible. ¶6. (SBU) Regarding the development of the Akkas gas field in Anbar Province, the Minister explained that Shell has made an interesting proposal to develop this field, and believes its producing capacity could reach 500 MMSCFD just from the known structure without counting the potential from a lower zone, which will be defined by 3-D seismic later. Shell wants to ship most of this production to Europe, with a minority share being sold to Syria. ¶7. (U) This cable has been cleared by E staff. CROCKER