New York (Platts)--9May2008

The two-year upstream oil and gas development contracts in Iraq that 35
foreign companies have qualified to bid for "represent a major opportunity for
producers to be well placed when long-term contracts are awarded," a new
report concluded.
The report Friday, by the firm Innovest Strategic Value Advisors, also
concludes that of the 35 companies, "Shell, BG, BHP Billiton, StatoilHydro and
Nexen are best equipped to meet the demands of operating in Iraq."

Iraq is seeking to have its oil production capacity rebound from a
current 2.3 million b/d, which is below the pre-Iran/Iraq war high of 3
million b/d and well below what its expected capacity would be if it realized
the potential of its massive proven reserves.

The Innovest report notes that despite the short duration of the initial
development contract, they are "highly coveted as they will confer crucial
momentum when Iraq's oil law is passed and a legal framework for long-term
foreign investment has been established."

The initial five technical support contracts with Shell, ExxonMobil,
Chevron, BP and Total are expected to be awarded in June, "though negotiations
are progressing slowly and the government has threatened to
reopen bidding on these five contracts if talks remain stalled," Innovest
noted in its report.

In addition to the companies gaining an important introduction into the
Iraqi upstream, Innovest notes achieving a 20% boost in output to 2.8 million
b/d, as envisioned in the projects, "puts the total value of production at $36
billion." The report warns, however, that, "How this value is to be shared by
western producers and Iraq's many political factions is the central issue of
these contracts, and also Iraq's oil law."

Beyond such complications to negotiating a deal, the report noted that a
real risk is that the Iraqi public will view the contracts as favoring the
companies, and cautioned that, "similar tensions in Nigeria have resulted in
sabotage and violence against Shell oil workers."

While oil companies continue to operate in Nigeria despite such risks,
they have showed no sign of exposing their employees and assets to the vastly
greater security risks posed by current day Iraq.

The Innovest report also cited the problems that have evolved from the
Kurdistan regional government's separate awarding of oil contracts, and the
withdrawal of its approval for the national draft oil law. Baghdad has called
the separate contracts illegal, which has added another layer to the sectarian
and other disputes that have prevented passage of hydrocarbons legislation.
--Robert DiNardo, robert_dinardo@platts.com