Oil Companies Set to Pirate Iraqi Reserves

JOSHUA GALLU, SPIEGEL.DE - The Iraqi government is considering a new oil law that could give private oil companies greater control over its vast reserves. In light of rampant violence and shaky democratic institutions, many fear the law is being pushed through hastily by special interests behind closed doors. . .

The draft law lays the ground work for private oil companies to take large stakes in Iraq's oil. The new law would allow the controversial partnerships known as 'production sharing agreements'. Oil companies favor PSAs, because they limit the risk of cost overruns while giving greater potential for profit. . .

It's also dangerous. It means governments are legally committing themselves to oil deals that they've negotiated from a position of weakness. And, the contracts typically span decades. Companies argue they need long-term legal security to justify huge investments in risky countries; the current draft recommends 15 to 20 years.

Nevertheless, Iraq carries little exploratory risk -- OPEC estimates Iraq sits atop some 115 billion barrels of reserves and only a small fraction of its oil fields are in use. By signing oil deals with Iraq, oil companies could account for those reserves in their books without setting foot in the country -- that alone is enough to boost the company's stock. And, by negotiating deals while Iraq is unstable, companies could lock in a risk premium that may be much lower five or ten years from now.

http://www.spiegel.de/international/0,1518,456212,00.html