The Legal Dimensions of Oil and Gas in Iraq

The Legal Dimensions of Oil and Gas in Iraq: Current Reality and Future Prospects

This book is the first and only comprehensive examination of current and future legal principles designed to govern oil and gas activity in Iraq. This study provides a thorough-going review of every conceivable angle on Iraqi oil and gas law, from relevant provisions of the Iraqi Constitution of 2005; to legislative measures comprising the oil and gas framework law, the revenuesharing law, and the laws to reconstitute the Iraq National Oil Company and reorganize the Ministry of Oil; to the Kurdistan Regional Government’s 2007 Oil and Gas Law No. (22) and its accompanying Model Production Sharing Contract; and to the apposite rules of international law distilled from both controlling UN resolutions addressing Iraq and more generally applicable principles of international law. This text is essential to the reading collection of every practitioner, business executive, government official, academic, public policy maven, and individual citizen with an interest in the details and controversial aspects of Iraqi energy law.

CONTENTS

Foreword / xi
Acknowledgments / xv
Prologue / xvii

PART ONE: THE CONTEXTUAL BACKGROUND

1. Facts Regarding Iraqi Oil and Gas Reserves and Their Legal Status Prior to Self-Governance / 3
I. Introduction / 3
II. Iraqi Oil and Gas Production / 9
III. Main Iraqi Pipelines / 12
IV. Iraqi Refineries / 17
V. Legal Status of Iraqi Oil and Gas Reserves Prior to Self-Governance / 19
VI. Conclusion / 26

2. The Provisions of the Iraqi Constitution Addressing Oil and Gas Activities: Of the Role of Subcentral Governing Entities, Handling of Revenues, and “Present” versus “Future” Fields / 27
I. Introduction / 27
II. Structure of the Iraqi Constitution / 31
III. Revenue Sharing: Articles 112 and 121 / 38
IV. Authority of Subcentral Units to Enter Oil and Gas Development Agreements: An Assessment of the Constitutionality of Efforts by the KRG / 41
V. Constitutional Authority of Subcentral Units and the Matter of “Present” versus “Future” Fields / 46
VI. Conclusion / 52

PART TWO: THE COMPLICATIONS ASSOCIATED WITH IRAQI LEGISLATIVE MEASURES

3. Federal Oil and Gas Framework Law and Subcentral Government Responses / 59
I. Introduction / 59
II. Basics of the Federal Oil and Gas Framework Law / 60
III. Significant Legal Issues / 74
IV. The KRG’s Oil and Gas Law No. (22) of 2007 / 79
V. Problems Associated with Preexisting Oil and Gas Contracts / 90
VI. Conclusion / 95

4. A Primer on the Federal Model Exploration and Production Contracts and the Kurdistan Regional Government’s Model Production-Sharing Contract / 97
I. Introduction / 97
II. Federal Government Model Exploration and Production Contracts / 99
III. The KRG’s Model Form of PSC: The Principal Provisions Subgroup / 113
• Substance and Nature of the PSC / 114
• The Host Government’s Right of Participation / 118
• Work Duties Imposed on the Contract Holder / 119
• Financial Obligations Associated with the Contract / 122
IV. The KRG’s Model Form of PSC: The Adjectival Provisions Subgroup / 126
• The Making of Decisions / 126
• Handling of Land and Assets / 127
• The Matter of Contract Stabilization / 130
• Important Miscellaneous Adjectival Provisions / 131
V. Conclusion / 136

5. The Federal Oil and Gas Revenue-Sharing Law: Its Many Problems / 138
I. Introduction / 138
II. Context of Iraqi Revenue-Sharing Law / 141
III. Overview of the Revenue-Sharing Law / 144
IV. Difficulties Associated with the Collection of Revenues / 148
V. Difficulties Associated with Distribution of Oil and Gas Revenues / 159
VI. Conclusion / 168

6. Measures to Reconstitute the Iraq National Oil Company (INOC) and Reorganize the Ministry of Oil / 171
I. Introduction / 171
II. The Relevant Terms of the Iraqi Constitution / 172
III. The Federal Oil and Gas Framework Approach: Articles 6 and 7, as Well as 5D and 5E / 176
• Articles 6 and 7 / 177
• Articles 5D and 5E / 181
IV. Federal Oil and Gas Framework Approach: Scattered Articles / 186
V. Relevant Insights on the Restructuring of INOC and the Ministry of Oil from the KRG’s 2007 Oil and Gas Law / 192
VI. Basic Conditions and Current Thinking Associated with Reconstituting INOC and Reorganizing the Ministry of Oil / 197
VII.Conclusion / 207

PART THREE: CURRENT ISSUES AND POTENTIAL FUTURE PROBLEMS

7. The Matter of Creditor Claims: An Examination of United Nations Security Council Resolutions 1790 (18 Dec. 2007) and 1859 (22 Dec. 2008), and Their Predecessors / 211
I. Introduction / 211
II. Primer on the Predecessors of Resolutions 1790 and 1859 / 213
III. Security Council Resolutions 1790 (18 Dec. 2007) and 1859 (22 Dec. 2008) / 221
IV. Analytical Significance of Protection from Legal Claims / 232
V. Conclusion / 241

8. Central Government Authority to Strike Oil and Gas Development Agreements in the Absence of a Federal Framework Law / 244
I. Introduction / 244
II. The Constitutional Context / 249
III. Evaluating the Article 110 Arguments / 251
IV. Article 114’s Shared Powers Arguments / 256
V. Article 112: Direct Reference to Oil and Gas / 258
VI. Power Carried Over from Saddam-Era Measures / 262
VII.Conclusion / 269

9. Distributing Profits in the Absence of a Federal Revenue-Sharing Law /  271
I. Introduction / 271
II. The Solidarity and Diversity Provisions: Articles 1, 3, and 14 of the Constitution / 273
III. Economic and Social Security Provisions: Articles 27, 30, and 34 of the Constitution / 275
IV. Oil, Gas, and Natural Resources Provisions: Articles 111, 112, and 121 of the Constitution / 278
V. A Constitutional Sharing Obligation for Revenues Collected at the Subcentral Level? / 282
VI. Inadequacies of the Relevant Constitutional Provisions / 285
VII. Proposed Constitutional Amendments: How They Would Affect Revenue Distribution / 288
VIII. Other Sources of Law Suggestive of an Obligation to Distribute Revenues / 290
IX. Conclusion / 293

10. Changing the Mix: Transition Fails and the Face of Iraq Is Altered / 294
I. Introduction / 294
II. KRG and Central Government Apply Their Own Approaches / 298
• Kurdistan Regional Government / 299
• Central Government / 303
III. The Country Splits Apart / 305
• Kurdistan as a Separate Nation-State / 306
• Separate State(s) in the Balance of Iraq / 311
IV. Conclusion / 317

Epilogue / 321
Index / 327

FOREWORD

As any lawyer knows, the law is not only illusive but transitory. To define it at one point-in-time is to attempt to put a living thing under the lens. This is particularly so with law in Iraq, a country not only in turmoil and transition, but in formation; a country poised between autarchy and democracy, between dictatorship and the rule of law. Despite the troop “surge,” sectarian violence continues and the viability of the Iraqi Central Government itself is not assured when U.S. troops finally depart. Some in government seek to right the wrongs to their brand of the faith over the last decades; others attempt to regain prewar dominance; yet another group seeks to establish an Iranian-style theocracy. Many want only to attain personal wealth in this turbulent era.

Into this maelstrom steps Professor Rex J. Zedalis to detail and discuss the developing oil and gas law of this troubled nation. Rather than decry or be intimidated by this volatile and transitory state of affairs, Zedalis has proceeded to outline the current state of the oil and gas law in Iraq and its various possible futures with a perceptiveness and thoroughness that is admirable if not astounding.

The author faces another unique challenge. For more than a year, the Iraqi framework oil and gas law, thought to be a hard-won consensus between factions, has languished unadopted, yet unrejected. The end of this legal purgatory into which this law was cast in February 2007 cannot be predicted. Furthermore, the current state of the statute can only be partially relied upon to indicate the state of Iraqi oil and gas law in the future. Although it is clear that this pending statute contains many elements that will eventually find their way into the law that is settled upon, it is also clear that some will not. It is also known that sentiment for a substantial change in the Iraqi Constitution itself is not insignificant.

Since February 2007, the political middle ground seems to have shifted a bit, making it likely that the now-pending framework law will be changed. Word on the street, as it were, for the past 18 months is that there is a grand compromise brewing. During this period of stalemate on the framework law, much has occurred. The Kurds have signed more than two dozen production-sharing contracts, and the Central Government has declared them to be unlawful. At the same time, the Central Government has unsuccessfully attempted to negotiate technical service agreements with major international oil companies (IOCs), but has entered tentative service agreements only with the Chinese and the Indians. The Status of Forces Agreement with the United States has been reached, setting forth a deadline for withdrawal. This withdrawal, and the end of the UN resolutions supporting U.S. presence, will usher in another new era in Iraq. Basra now seems to be seeking status as a region on par with the KRG. Sectarian violence seems to have subsided only to remain barely below the surface...

R. Dobie Langenkamp
Former Professor of Law and Director
National Energy Law and Policy Institute
Former Deputy Assistant Secretary
U.S. Department of Energy
Consultant to the U.S. Department of
Energy on Iraqi Energy Law
December 2008

The Legal Dimensions of Oil and Gas in Iraq
Current Reality and Future Prospects

Rex J. Zedalis
Comparative and International Law Center University of Tulsa

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