IRAQ - May 24 - Baghdad To Cancel 3 Oil Deals.

US-appointed Oil Minister Thamir Ghadhban announces that three oil production contracts signed by the previous regime with Russian and Chinese companies will be either terminated or frozen. (The move seems likely to plunge the country into complex international litigation, just days after the UN voted to end sanctions against Baghdad - see last week's Recorder). Ghadhban says a contract with the Russian oil giant LUKoil was terminated, while another contract with a Chinese company to develop Al Ahdab oilfield was frozen by "mutual agreement". The fate of the third contract is unclear. French, Russian, and Chinese companies received the lion's share of the services and production contracts under the old regime, as their governments were the most supportive of Iraq on the UN Security Council. Phillip J. Carroll, the former Shell executive chosen by the Pentagon to advise the Oil Ministry, said there was some doubt whether existing foreign contracts "gave the Iraqi people the full benefit of their oil wealth". In an interview with The FT, Mr Carroll said there was scope for renegotiating some existing oil deals with foreign oil companies.

He said: "Each one of these contracts will have to be examined, in the first instance, in terms of their legal status and standing. Someone working for the ministry would have to say, 'Do we have an enforceable contract here between Iraq and some other entity or is this merely an incomplete process of negotiation?' There were some, but relatively few, fully signed and operative contracts. Secondly, if the contract is deemed to be incomplete or flawed in some way, they have to then examine the commercial terms - if they are fair to both parties, and if it's something they want to go ahead with. Several of these contracts have cast doubt as being overly generous to one party". While taking aim at Russian and Chinese companies, Ghadhban said he was nevertheless in favour of opening up the oil industry to foreign investment: "We are going to open the door for foreign investment but in accordance with a formula that safeguards the interest of the Iraqi people". The country's production is currently at 800,000 b/d of crude oil, he said. Exports could begin within the next few weeks. Carroll confirmed that the former regime had developed a strategic plan to increase production capacity from 3m b/d to 6m b/d in six to seven years at a cost of $25-30 bn. Such a scheme would eventually enable Iraq to challenge Saudi Arabia as the largest oil exporter in the world. At that point, he said, Baghdad would have to decide whether to continue membership in OPEC, which puts a cap on production levels, and how to attract foreign investment. Carroll was careful to say that it was up to an Iraqi government to decide both these issues. He said: "It's not something I have any interest in, it is a decision of a sovereign government of Iraq".