MADRID -(Dow Jones)- The contract model Iraq's autonomous Kurdish government has used in a host of deals that allows foreign oil companies to book a relatively small amount of Iraqi oil reserves as their assets will financially benefit Iraqis far more than the current deal plans being pursued by Baghdad, a new study released Monday says.
The study, commissioned by the Kurdish Regional Government, comes as recent talks between the Kurds and Baghdad have yet again failed to yield any meaningful progress toward finalizing Iraq's long-delayed federal oil law that will set the legal framework for attracting foreign investment into Iraq's dilapidated oil sector.
The roughly 20 production sharing contracts the Kurdish government has signed with foreign companies "provide the framework for an optimal level of production and recovery of oil and (natural) gas from the reservoirs while creating a high value of government revenues," the study says. The report was done by international law firm Clifford Chance.
Iraq would actually lose crude revenues of $450 billion if the service contracts being pursued by Baghdad were the basis for deals covering all the oil potential in the Kurdish region. Those figures assume 30 billion barrels of new oil discovered in Iraq at an average oil price of $100 a barrel.
Under the service deals, the interests of oil companies and the Iraqi government are badly misaligned and strongly encourage investors to incur and declare higher costs, the study's author, Pedro van Meurs, said. Van Meurs has done fiscal studies on oil projects for many national governments.
"(International oil companies) do not really have an incentive to give good advice. They receive the same consulting fees regardless of the results of the field production," van Meurs said about the service contracts being pursued by Baghdad.
Not wanting to allow foreign companies to book any amount of Iraqi oil reserves as their own, the federal government has said it see no reason to use production sharing contracts for oil deals in Iraq.
Baghdad and the Kurds have also disagreed over how future undiscovered oil fields that lie between the three northern Kurdish provinces and the rest of Iraq will be managed and how oil revenues will be distributed.
Kurdish oil minister Ashti Hawrami said here in an interview ahead of an industry conference that no progress was made in recent talks in Baghdad between federal and Kurdish negotiators on bridging big disagreements over the form of the country's federal oil law.
"There was no progress made at all," he said, adding that talks will continue but that no firm timetable had been set.
The Kurdish oil contracts with foreign companies like Austria's OMV AG (Vienna:OMV) (OMVKY) and Canada's Talisman Energy (NYSE:TLM) (TLM) have been signed under the Kurds' own oil law. The Kurdish government says all its oil deals abide by Iraq's constitution, which gives the country's regions authority to have some control over managing hydrocarbons.
-By Spencer Swartz, Dow Jones Newswires; +44 (0)207 842 9357; spencer.swartz@ dowjones.com
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(END) Dow Jones Newswires 06-30-08 0515 Copyright (c) 2008 Dow Jones & Company, Inc.
