Reliance-Kurdish Region deals run into trouble

India's Reliance Industries Ltd. (RIL) may find the going tough in acquiring future oil blocks in Iraq, according to Iraqi Oil Minister Hussain Al-Shahristani.

Shirish Nadkarni
OGJ Correspondent

MUMBAI, Nov. 20 -- India's Reliance Industries Ltd. (RIL) may find the going tough in acquiring future oil blocks in Iraq, according to Iraqi Oil Minister Hussain Al-Shahristani.

"Those companies that have signed contracts with the autonomous Kurdish Regional Government have been warned that they will not be allowed to export oil from these blocks," said Al-Shahristani.

"In addition, they may also compromise their chances on future exploration and production contracts. These contracts have no standing with the Iraqi government."

Reacting to Al-Shahristani's statement, a RIL spokesman said, "The two exploration blocks in Northern Iraq's Kurdistan region for which we have signed agreements are within the legal framework. Reliance has always maintained the highest cordial relationship with the government of Iraq and all other stakeholders in countries where we operate. We will continue to do so in the future."

The Mukesh Ambani-led RIL had earlier this month signed a contract for the Rovi and Sarta blocks in northern Iraq, paying a signature bonus of $15.5-17.5 million. RIL subsidiary Reliance Exploration & Production DMCC would serve as operator of the two blocks, which could hold as much as 1 billion bbl of oil reserves.

The RIL deals were part of seven contracts the Kurdish government signed recently in defiance of Iraq's proposed new exploration law. According to available information, nearly 80% of the blocks that RIL received, which total 450-500 sq km, are made up of oil-bearing structures. The company had expressed confidence that it will make a discovery soon.

Iraq's oil minister previously had said that all oil contracts signed before the passing of the oil law would be considered "illegal."

Hydrocarbons law stuck
The hydrocarbons law of Iraq is still awaiting Parliamentary nod.

The legislation is stuck due to differences between warring political factions over the sharing of lucrative revenues from Iraq's crude, the third-largest proved reserves in the world.

The difficulties confronting Reliance Industries in Iraq are just the tip of the iceberg for any foreign contractor hoping to enter Iraq's oil sector, according to Roger Howard, author of 'Iran Oil.'

"There will be numerous more obstacles—political and legal—rather than just technical ones lying ahead," said Howard.

"Ethnic tensions in Iraq are at the core of the problem. The country has always been a very artificial amalgam of different cultures and religions.

"As a result, the questions of who owns the northern oil-bearing regions around Kirkuk and Mosul, and who has rights to the revenue the fields generate, have been extremely complex and controversial. Both the Arabs and the Kurds have been staking their claims, and Saddam Hussein tried hard to alter the local demographic balance in favor of the Arabs."

Howard feels that there is unlikely to be a swift resolution of the Reliance issue. "Even in a best-case scenario, the disputes and negotiations over domestic oil legislation could drag on for some considerable time. In a worst-case scenario, they could also become seriously complicated if Iraq starts to politically splinter even more."

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