The Iraqi ministry of oil has recently completed the pre-qualification stage of the second bidding round. This process is relevant to the reserves in the southern part of the country.
Meanwhile, in the far north, the Kurdistan Regional Government has awarded more than 30 licences to companies from around the world.
The ministry of mines in Afghanistan has just commenced its first bidding round for the award of exploration and production-sharing contracts in three blocks in northern Afghanistan.
The growing level of security and stability in Iraq as it emerges from conflict is allowing the somewhat fragile national government to encourage badly needed investment in its industry.
This is of particular interest to the hydrocarbon industry, with Iraq’s proven reserves of about 115billion barrels of oil and 111trillion cu ft of gas.
Production of gas has soared from 80billion cu ft in 2003 to 420billion cu ft in 2006, but this is still some way short of its potential.
By contrast, the known reserves in Afghanistan are relatively small, at about 1.75TCF and 65million barrels of oil.
However, these figures date from exploration carried out under the Soviet occupation, and with a recent US Geological Survey estimate that gas reserves could be almost 15TCF, the gas industry in Afghanistan has potential for rapid growth.
Security in Afghanistan, however, is still challenging, and although the hydrocarbon reserves are located in the more stable north-east of the country, in the Sar-e-pol and Jowzjan provinces, the Foreign and Commonwealth Office still advises against all but essential travel to the region.
Perhaps more commercially important for Afghanistan than its oil&gas reserves is its position between the vast hydrocarbon reserves in central Asia and the markets of the Indian subcontinent.
The proposals for a gas pipeline (the Trans-Afghan Pipeline) to transport gas from the Caspian to Pakistan in the late-1990s were agreed under the Taliban government in 2005 but have since stalled, although in 2008, India signed up to a deal with Pakistan and Afghanistan to buy Turkmeni gas, which will require the building of the pipeline.
So let’s consider the emerging legal regimes for hydrocarbons.
The Iraqi constitution, drafted in 2005, stipulates that the country’s oil&gas reserves are the property of the Iraqi people.
The hydrocarbon law, drafted in line with the principles of the constitution in 2007, acknowledged that substantial investment was required and that the revenue from oil&gas was crucial for redeveloping the Iraqi economy.
The fourth draft of the law is expected to be approved by parliament in Q2 of 2009.
The draft law expressly applies to the Kurdistan region, but the Kurdistan Regional Government is also attempting to implement its own regional set of laws governing oil&gas activities in Kurdistan, a region which has much greater stability and resulting foreign investment.
The draft expresses the notion that the exploration and production activities previously carried out by the ministry of oil will need to be distributed among major technical and commercial entities, including a newly established, independent Iraqi National Oil Company (INOC).
The hydrocarbon law acknowledges that foreign investment and expertise is needed to modernise and develop the oil&gas sector and, to attract this, a clear, transparent and effective legal framework is required.
The hydrocarbon law sets out the general aims and principles governing oil&gas activities in Iraq without providing much detail. In particular it sets out:
The organisational structure of the various government and administrative bodies, outlining the respective roles of the council of representatives, the council of ministers, the federal council for oil&gas, any regional organisations and the ministry of oil.
The basis for the establishment of INOC.
The basis for the granting of licences by the ministry (or appropriate regional organisation).
The ownership of oil reserves and the resulting revenues.
The conduct of exploration and production activities carried out by entities awarded exploration and production contracts.
Access to the main pipeline networks and transportation.
The treatment of natural gas – both associated and non-associated.
Financial regulation, including principles of taxation.
Health and safety guidelines and environmental considerations.
Various miscellaneous provisions dealing with matters such as disputes, anti-corruption, transparency and the treatment of existing contracts.
In Afghanistan, the principal legislation for the conduct of exploration and production in Afghanistan is the hydrocarbon law.
It sets out the main state structures and the basic legal framework for exploration and production, including land rights, the conduct of contractors and construction of pipelines.
The Afghan hydrocarbon law is similar to the Iraqi hydrocarbon law in that they are both concerned with setting out broad aims and the philosophy governing operations in this energy sector rather than proscribing a set of detailed regulations.
Both Afghanistan and Iraq are using exploration and production-sharing contracts, though Afghanistan is not currently proposing the revival of its national oil company.
Despite the contrasting levels of maturity between the oil&gas sectors in Iraq – which has been producing oil on a commercial scale since the early-19th century – and Afghanistan, which has seen little production in the 30 years since the Soviets realised the potential for commercial exploitation, the Afghan governments (advised, interestingly, by the Norwegian government) have developed its law further than Iraq.
The Afghanistan Ministry of Mines recently published the draft hydrocarbon regulations, which contain much more detailed information on the tender process and the type of contracts and rights that will be granted, as well as specific conduct requirements for after the award of the contract.
We will await with interest future developments in Iraq and Afghanistan.
Penelope Warne is head of oil&gas at law firm CMS Cameron McKenna LLP
