Oil Giants to Sign Contracts With Iraq

Iraq is preparing to allow four of the biggest western oil companies to renew exploitation of the country's vast reserves for the first time in almost four decades.

Iraq's oil ministry stepped up talks with BP, Exxon Mobil, Shell and Total after the US vice-president, Dick Cheney, visited Iraq in March, where he also pressed the government to revive efforts to pass the hydrocarbon law that nationalist MPs were blocking. The first contracts are expected to be signed this month. Some 90% of Iraq's budget comes from oil revenues.

Iraq's oil minister, Hussain al-Shahristani, told the Guardian this week that the deals did not amount to the privatisation of the country's oil. But the four companies are heirs to the consortium given the concession to control Iraq's oil by King Faisal, the foreign Sunni Arab whom the British imposed on Iraq's majority Shia population after occupying the country during the first world war. They lost their right to explore new fields in 1961 after the monarchy was overthrown, and nationalization followed under the Ba'ath party.

There was no competitive bidding for the concessions, which are to be awarded to the four giants plus Chevron and some smaller companies. After the US-led invasion in 2003 the companies supplied advisers and trainers to the oil ministry for free in the hope of getting a foot in the door. The Russian company Lukoil did the same but lost the contract for Iraq's largest undeveloped field to Total and Chevron. Chinese and Indian firms also lost out.

Laws on how to develop Iraq's oil and share the profits between its regions stalled in parliament last autumn.

To calm nationalist fears, the contracts are limited to "technical support" for two years. The companies will sell expertise and equipment rather than providing capital and management control. The aim is to increase production by 100,000 barrels a day in each of the four fields.

But the deals, known as service contracts, are unusual, said Greg Mutitt, co-director of Platform, an oil industry research group. "Normally such service contracts are carried out by specialist companies ... The majors are not normally interested in such deals, preferring to invest in projects that give them a stake in ownership of extracted oil and the potential for large profits. The explanation is that they see them as a stepping stone..."

He said the companies' lawyers had been insisting "on extension rights under which each company would get first preference on any future contract for the field on which it has worked".