Iraq Cancels Six No-Bid Oil Contracts

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By ANDREW E. KRAMER and CAMPBELL ROBERTSON

An Iraqi plan to award six no-bid contracts to Western oil companies, which came under sharp criticism from several United States senators this summer, has been withdrawn, participants in the negotiations said on Wednesday.

Iraq's oil minister, Hussain al-Shahristani, told reporters at an OPEC summit meeting in Vienna on Tuesday that talks with Exxon Mobil, Chevron, Shell, Total, BP and several smaller companies for one-year deals, which were announced in June and subsequently delayed, had dragged on for so long that the companies could not now fulfill the work within that time frame. The companies confirmed on Wednesday that the deals had been canceled.

While not particularly lucrative by industry standards, the contracts were valued for providing a foothold in Iraq at a time when oil companies are being shut out of energy-rich countries around the world. The companies will still be eligible to compete in open bidding 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 OPEC countries agreed Tuesday to reduce output. After its cancellation of the deals, Iraq reduced by 200,000 barrels per day its goal of producing 2.9 million barrels per day by the end of the year.

The deals would have been the first major oil contracts with the central government since the toppling of Saddam Hussein in 2003, though the Kurdistan region has separately signed more than 20 contracts.

Since that time, however, Iraq's central government has moved on with other energy deals. The Oil Ministry last month signed its first major post-Hussein contract with the China National Petroleum Corporation. 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 on Sept. 3, according to a statement from Shell. In Vienna, Mr. Shahristani said the ministry would now invite bids on the contracts.

Shell said the Iraqi side had broken off negotiations. "Shell can confirm that we received a letter from Iraqi Ministry of Oil on September 3rd informing us of their decision to cease further discussions," the company said in a statement.

Earlier this summer, a group of Democratic senators led by Charles E. Schumer of New York had 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 agreement on a hydrocarbon law and a revenue-sharing agreement. This criticism was conveyed to Mr. Shahristani by the American Embassy in Baghdad in late June, and after that the deals were 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," Senator Schumer said in a telephone interview on Wednesday. "It's a good first step. Now let's make progress on the long-term" goal of passing a hydrocarbon 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 proceed with new oil deals whether or not the Iraqi Parliament passes a hydrocarbon law.

Senator Schumer said Wednesday that he would propose an amendment to the defense appropriation bill in Congress that would specify that should Iraq sign any petroleum contracts before passing the law, profits from those deals would go to defray United States reconstruction spending in Iraq.

Andrew E. Kramer reported from Moscow, and Campbell Robertson from Baghdad. James Glanz contributed reporting from New York.

http://www.nytimes.com/2008/09/11/world/mi...amp;oref=slogin