Iraqi court to decide on Rumaila oil deal in April

29 March 2010

Ministry of Oil to reply to challenge on legality of oil deal on 29 March

Iraq’s Ministry of Oil will formally reply on 29 March to a seven-point challenge to the legality of a major oil services contract it awarded in November 2009 .

Iraq’s Federal Supreme Court set the March deadline for the government’s legal representatives to address challenges to the deal prepared by lawyers for Sheda Musawi, an outgoing parliamentarian.

Hearings began in December 2009 and sources expect a ruling by early April. If upheld, the challenge could bring Iraq’s plans to expand oil production to more than 12million barrels a day (b/d) to a halt. The case involves testimony from both Prime Minister Nouri al-Maliki and Oil Minister Hussain al-Shahristani.

The service contract to develop the 17-billion barrel Rumaila oil field was signed by the UK’s BP and Chinese National Petroleum Corporation (CNPC) in November 2009 as part of Baghdad’s first post-war oil licensing round. It was one of eleven service contracts to develop Iraq’s oil fields awarded to international oil companies (IOCs) in two 2009 bid rounds. None of the deals were given parliamentary approval (MEED 16:3:10).

Musawi argues that the contract violates the Iraq’s constitution as it does not have the approval of parliament and that the regional governments were not involved in the contract process.

The case itself is the result of the government’s inability to push through key legislation on the roles of the oil ministry, local and central governments in deciding oil policy as well as the role of IOCs in the sector, says one Baghdad source .

Both sides of the legal challenge remain optimistic. “The contract has been legally approved by the cabinet,” says a source close to the Ministry of Oil. “There is no need to submit the deals to parliament. The constitution does not require it and I am sure the federal court understands this.”

“It is frightening just how strong Musawi’s case is,” says one source close to his legal team, however.

IOCs are eager to get moving on the development of the oil fields, but the lawyers at BP are in the best place available, according to the Baghdad-based legal source.

“BP can keep waiting for the court’s decision,” he says. “But for the other companies that signed later in the second bid round, they have to watch in this period of uncertainty. If they win, they can never be challenged again.”

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