October 10, 2011 / 2:10 PM / 8 years ago

UPDATE 2-Iraq's Shahristani retains hard line on Kurdish oil

* Deputy PM: Oil contracts with Kurdish government remain illegal

* Says producer payments cover expenses only, not profits

* Hard line reflects continued deadlock on oil law - analyst

* DNO says wants to avoid politics, keep getting paid

By Walter Gibbs

OSLO, Oct 10 (Reuters) - Iraq’s deputy prime minister said on Monday oil contracts signed by Iraqi Kurdistan’s regional government must be rewritten and that recent government payments to international producers in the region in no way validate the contracts.

“The contracts as they stand will have to be presented to the government and brought into line with our other contracts in the country,” Hussein al-Shahristani, deputy prime minister for energy, told Reuters at an energy conference in Oslo.

In reiterating Baghdad’s long-held view that Kurdish officials have overstepped their authority on dozens of contracts, Shahristani’s remarks suggest the central government is sticking to a hard line in talks on a national oil law.

Asked if Kurdistan’s contracts were illegal, Shahristani replied as he has before: “Yes, as far as the Iraqi government is concerned those contracts are not binding with Iraq.”

Since August a parliamentary committee has been debating a draft national law approved by the Iraqi cabinet that would centralise control of oilfields in Baghdad.

In the balance are Norway’s DNO , London-listed Gulf Keystone , Heritage Oil and other firms that have gained Kurdish production licences since the U.S.-led invasion of Iraq in 2003.

“Our contracts are legal — they are entered into with the Kurdish regional government — but we do not want to participate in the political debate in Iraq,” said DNO spokesman Tom Bratlie.

“We have of course seen that there are different views on this question between Baghdad and Erbil,” he added, referring to the capitals of Iraq and the Kurdish region.

While the regional contracts grant the companies a share of oil profits, Shahristani has said he favours leaner “service contracts” like those imposed in southern Iraq.

He said on Monday he could not predict when a final draft of the national oil law would be sent to the full parliament.

DEADLOCK

Analyst Trond Omdal of Norway-based Arctic Securities said Shahristani’s remarks suggest Iraq’s cabinet remains deadlocked with parliament members friendly to the Kurdish government.

“The fronts are the same,” he said. “Eventually most people think there will be a compromise.”

Shahristani said the Kurdish government’s recent payments to international producers using export revenues collected by Baghdad reflected no endorsement of the contracts.

“What the KRG had asked the Iraq government is to pay them (companies) for the actual capital that was invested in drilling wells and making service facilities that are the property of Iraq,” Shahristani said.

“These are only the capital expenses that the KRG has spent on developing these fields. As far as we are concerned they have nothing to do with the contracts, or with the companies.”

DNO, which has exported as much as 70,000 barrels a day from Kurdistan since February, received $60 million from the Kurdish government last month and $104 million in June without an explicit explanation of what the money was for.

The payments were presented as “cash advances” in an interim arrangement, Bratlie said.

“There has been some challenge with regards to how to book this,” he said, “but the important thing for DNO is that we are getting paid, period.”

Shahristani said he had no plan to meet with DNO executives while in Norway for the conference.

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