Shell Gas Venture Delayed by Legal Issues

Dow Jones reports that legal difficulties could delay the $12 billion joint venture deal with Shell and Mitsubishi capture and market natural gas from Iraq's southern oil fields, possibly for months.

The deal is a joint venture with Shell holding 44% of the project, Mitsubishi 5%, and Iraqi state South Gas Co. the remaining 51%. It aims at capturing associated natural gas produced at fields near the oil hub of Basra, including Rumaila. Production at the 25-year venture is expected to peak at 2.5 billion cubic feet a day, officials said.

"There are some legal and economic aspects in the draft deal and also old Iraqi laws need to be changed or amended to allow the implementation of the project," Ahmed al-Shammaa, Iraq's Deputy Oil Minister, told Dow Jones Newswires in an exclusive interview.

Iraqi officials had originally intended to finalize the gas exports deal by the end of 2010. Iraqi officials are expected to meet later this week to try to work out a plan to allow exports to begin.

Shamma said that according to oil and gas law established in the Saddam Hussein era, only the State Oil Marketing Organisation, or SOMO, is allowd to export gas or crude oil. That poses a challenge to the Shell venture, even though another Iraq state entity holds a majority interest in the project. "There are officials in the ministry who think that the deal cannot be finalized under the past laws," Shamma said.

Iraq has yet to enact a new oil and gas law which has been stalled for more than two years. The government is hoping that the new law will be enacted this year.

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