DNO’s Production Sharing Agreements in northern Iraq. Relevant Questions and Answers Q. Why did DNO sign Production Sharing Agreements (PSA) with the Kurdistan Regional Government instead of the Ministry of Oil in Baghdad? A. From 1992 onwards, the Kurdistan Regional Government (KRG) exercised full governmental powers on the territory of Kurdistan including managing natural resources. The authorities of the KRG were affirmed in the 1998 Washington Agreement brokered by US Secretary of State Madeleine Albright. The KRG and DNO signed the PSAs on 25 June 2004, before Kurdistan’s status was altered by the entry into force of the Transitional Administrative Law. Q. How does Iraq’s new Constitution affect the KRG-DNO PSAs? A. The Constitution authorizes the federal government to manage oil and gas extracted from current fields (Article 109) in cooperation with the relevant regional government. Future fields, like the ones DNO is exploring, are not mentioned. Articles 111 and 117 state that any power not specifically assigned to the federal government belongs to the regions. Since the power to manage future fields is not assigned to the federal government, it belongs to the regions. This distinction between control of existing oil (by the federal government with the regions) and future oil (by the regions) was a critical compromise in the making of Iraq’s constitution. It was personally negotiated between Kurdistan President Masoud Barzani and the head of Iraq’s Oil Council, Deputy Prime Minister Ahmad Chalabi, with the direct involvement of the US Ambassador to Iraq. Q. Has Iraq’s Ministry of Oil approved the KRG-DNO PSAs? A. Since the PSAs relate to fields not in commercial production, the Kurdistan Regional Government has exclusive authority to make agreements and to establish the appropriate legal regime. Q. Has the Iraq’s central government approved the DNO PSAs? A. Iraq’s new constitution validates all laws and contracts made by the KRG since 1992 (Article 137). This clause was specifically included to remove any possible legal challenges to KRG’s contracts, including the oil contracts. Q. What are DNO’s relations with the Iraqi Ministry of Oil? DNO has excellent relations with the Iraq Ministry of Oil (MOO). DNO and the MOO operate a joint committee for cooperation and DNO provides training to candidates identified by the MOO. Iraq’s Deputy Oil Minister is the Iraqi Co-Chairman of the MOO-DNO Joint Coordination Committee. The MOO has been fully informed about DNO’s activities and has provided valuable assistance to DNO, including technical information such as seismic and well data. The MOO had a representative at the 29 November 2005 “spudding” ceremony of the Tawke- 1 exploration well. Q, Is DNO the only company operating under PSAs signed with the KRG? A. Several foreign companies are now operating in Kurdistan under PSAs signed with the KRG. One company has recently made a deal to sell oil to a refinery which will be operated by the MOO. Q. What is the significance of Article 109 (2) which says that the federal government and the oil producing regional governments shall together develop a strategic plan? A. The strategic plan relates to national level issues such as managing pipelines and keeping production within OPEC quotas. The strategic plan must be agreed by all the oil producing regions and the federal government. Unless each region agrees, it will not alter the constitutional bargain dividing control of existing oil and future oil between the federal government and the regions. Q. Isn’t there an effort to amend Iraq’s Constitution? Couldn’t this affect the validity of DNO’s PSAs? A. Iraq’s constitution is normally very difficult to amend. There is, however, a four month window in which the National Assembly can propose amendments by majority vote to be submitted to a national referendum. The referendum rules permit any three Iraqi provinces to veto the amendments by a two thirds vote. Because of near unanimous support for the principle of local control of resources in the three Kurdistan Provinces, it is very unlikely there will be any proposed amendments to the clauses relating to management of oil.
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