SHELL'S IRAQ SOUTH GAS DEAL NEARS FINALIZATION

C O N F I D E N T I A L BAGHDAD 001960 SIPDIS DOE FOR GEORGE PERSON; STATE ALSO FOR EEB AND NEA/I E.O. 12958: DECL: 07/20/2019 TAGS: EPET ENRG SENV EINV IZ SUBJECT: SHELL'S IRAQ SOUTH GAS DEAL NEARS FINALIZATION REF: A. BAGHDAD 1151 ¶B. BAGHDAD 955 Classified By: Acting Economic Counselor Ruth Hall, reasons 1.4(b,d) Also contains business proprietary information. Please treat accordingly. ¶1. (SBU) Econoff met July 9 with Shell Gas and Power Vice President Mounir Bouaziz, Shell Exploration and Production Logistics Manager Ayman al-Shukr, Shell Gas and Power Business Development Economist Christiaan van der Eijk, and Project Finance Manager Andrew Tait. Bouaziz reported that Shell and the Ministry of Oil management team, led by Deputy Oil Minister Ahmad al-Shamma, had finished negotiating the terms of the required supporting documents for the Iraq South Gas deal. (Note: Shell's Iraq South Gas deal would commit Shell to install the processing facilities and other infrastructure required to end the current flaring of approximately 700 million cubic feet of associated gas, or the energy equivalent of 130,000 barrels of oil, from Iraq's oil fields in Basrah Province. As reported ref B and previous, the detailed Joint Venture (JV) proposal to be submitted would include a Shareholder Agreement, a South Gas Development Agreement, and a pricing mechanism. End note.) Shamma told Shell he would prepare a cover memorandum and forward the documents to Oil Minister Shahristani for his review and approval, after which the documents would be put before the Cabinet (Council of Ministers) for approval by the end of July. ¶2. (SBU) Bouaziz was satisfied that the deal was on track and, in fact, ahead of schedule, since he had expected to complete the negotiations originally no later than October. He noted that Shell estimated that the additional natural gas supply would provide the GOI with $15 billion in savings. Including the savings, future revenue and Shell's tax payments, the GOI would realize $55-$60 billion annually. The Ernst and Young valuation of South Gas Company (which would be Iraq's contribution to the JV capitalization) was nearing completion, but Bouaziz was confident that the results would show that South Gas would not need to pony up much additional cash, if any, for its 51% share. ¶3. (C) Shell had also been working on broadening public acceptance of the Shell project, having held five "town hall" meetings in Basrah. During the most recent visit, Bouaziz and his team briefed Finance Minister Jabr, who had expressed his appreciation for the information. Bouaziz was cognizant that Shahristani's rivals in Cabinet might seek to derail the Shell project to undermine the Oil Minister, so Shell had also met with Minister of Electricity Abdul Karim Wahid. Shell had shrewdly suggested to Karim that he take credit for pushing Shahristani to finish the negotiations, since the additional natural gas would benefit the Ministry of Electricity's power production capacity. FORD