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June 19, 2008 4:30 PM

Big Law Helps Big Oil Break Into Iraq

Posted by Daphne Eviatar

The New York Times today reports on the ongoing negotiations by the big multinational oil companies to reenter Iraq after a 36-year absence. As we reported last week, and as the Times article details, Iraq intends to sign technical support agreements with foreign oil majors--including Exxon Mobil, Shell, Total, and BP--by June 30.

"The deals...will lay the foundation for the first commercial work for the major companies in Iraq since the American invasion, and open a new and potentially lucrative country for their operations," the paper reports. And they will provide a windfall of work, and profits, to the top oil and gas law firms, especially those representing the majors. The likely beneficiaries include Houston-based firms Fulbright & Jaworski, Baker Botts, and Vinson & Elkins.

Although branded as "service contracts," one critic described them as "a wolf in sheep's clothing." 

"On the face of it, they’re innocuous service contracts, but peel beneath the surface and you’ll find that company lawyers have been insisting on wide-ranging extension rights--potentially giving companies access to the long-term control over Iraqi oil that they so desire," says Greg Muttit, an analyst at Platform, a London-based oil watchdog organization. "With such grave implications for Iraq’s future, civil society groups and parliamentarians should demand transparency of the contracts before they are signed."

The apparent victors in the no-bid deals suggest that the Iraqi government is prepared to follow through on its previous threats to deny contracts to oil companies that have entered into production-sharing agreements (PSAs) with the Kurdistan Regional Government (KRG), which Iraq insists is illegal. As reported in the November 2007 issue of The American Lawyer, Baker Botts last year helped Texas-based Hunt Oil land the first PSA for an American oil company in Iraq. Hunt Oil is now blacklisted from getting the service contracts that companies like Shell and Exxon are close to securing--although Baker can still represent other companies negotiating with the Iraqi government.

Last fall, Iraqi oil minister Hussein al-Shahristani said that oil companies' deals with the KRG undercut development of an oil law in Iraq, and potentially violate any future law--something the KRG vehemently denies. But this latest news of the technical support agreements suggests al-Shahristani apparently has no problem negotiating service contracts with the oil majors even in the absence of a national oil law.

The proposed law, originally expected to pass in the spring of 2007, set off a firestorm among Iraqi nationalists and labor unions months earlier, as The American Lawyer reported last year. The law would have opened Iraqi oil to foreign investment, which had been strictly limited under Saddam Hussein, and would have provided the Iraq National Oil Co. with exclusive control of only 17 of Iraq's approximately 80 known oil fields. The unions worried the Iraqis were bowing to U.S. influence and handing over the shop keys to foreign companies. (Interestingly, the U.S. adviser to the Iraqi government on the law was Ronald Jonkers, a former Clifford Chance project finance lawyer who previously was an official with the Overseas Private Investment Corporation, a U.S. agency that provides risk insurance for oil companies operating abroad.) The proposal also would have allowed the Iraqi government to enter into production sharing contracts with foreign companies, something the industry had been pressing for. After repeated protests, the draft law was shelved.

Now the oil majors have found their way back in, though they've had their hands in this for some time. Most of the companies sealing these highly coveted deals have been providing free "technical advice" for two years to the Iraqi government about how it should run its oil industry. The Times reports that once the law is passed and bidding is opened to other players, those with service contracts will have the chance to match any bids from competitors in order to continue the work they're doing.

Which just goes to show that even without an oil law on the books yet, Big Oil and their Big Lawyers can set the stage by rewriting the facts on the ground.

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here is what is going on in Iraq

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