Ever since oil first gushed in Texas, Houston-based Baker Botts has represented wildcatters. While those deals were always risky, even Baker may not have anticipated that the deal made by the firm for its latest wildcatter — Hunt Oil Co., a longtime client hungry for oil in Iraq — was risking quite so much.
In September, Baker lawyered a deal between Hunt and the Kurdistan Regional Government (KRG). In mid-November, the Iraqi Oil Minister announced that all oil companies that have cut deals with the KRG will be blacklisted. “Any company that has signed contracts without the approval of the federal authority of Iraq will not have any chance of working with the government of Iraq,” oil minister Hussein al-Shahristani told reporters during OPEC meetings in the Saudi Arabian capital of Riyadh. “We warned the companies that there will be consequences… that Iraq will not allow its oil to be exported,” Shahristani said.
The deal was for exploration rights in northern Iraq. The Baker Botts team was led by Sean Korney, a Dubai-based partner with a record of representing energy companies buying up oil and gas rights around the globe. None were as controversial as the Hunt Oil rights, however. Not only was the deal made in a war zone, but Iraq is still working on oil resources legislation. Under the October 2005 Iraqi constitution, local oil is owned by “the Iraqi people.”
Neither Baker Botts nor Hunt Oil would comment on the deal or on the Iraqi government’s latest pronouncements.
Both the U.S. and Iraqi governments are annoyed by the Hunt contract. “Any deal [with the KRG] has no standing as far as the government of Iraq is concerned,” Iraqi oil minister Hussain al-Shahristani told reporters in September, even before he said in November that he’d bar the companies from working in the country. The agreements could “have no legal standing,” added Thomas Casey, a spokesman for the U.S. Department of State, at an October briefing.
The Bush administration also claims that the deal may hurt peace prospects in the region. Passing a national oil law that will cover Sunni, Shiite, and Kurdish regions is one of the key “benchmarks” set by the Bush administration to measure progress in Iraq. And this deal, according to Casey, is not “helpful in terms of seeing a national oil law get passed.” No one at Baker Botts would comment.
Meanwhile, the House Oversight Committee in Congress is investigating whether long-standing ties between Ray Hunt, the CEO of Hunt Oil, and the Bush administration (Hunt sat on the president’s Foreign Intelligence Advisory Board) may have given Hunt access to classified information prior to the oil deal. The company denies that it relied on anything confidential.
Hunt and Baker Botts aren’t the only firms with their eyes on Iraq, home to the third-largest oil reserves in the world. “All major oil companies are taking a very close interest in the future potential in Iraq,” says Mathew Kidwell, a partner in the Abu Dhabi office of Shearman & Sterling. “We have certainly had discussions with a number of our oil industry clients about the legal framework in Iraq and in the regions.” He cites Kurdistan as having “the most immediate potential for foreign investment” in the area, mostly because “the security situation is much more robust” than in Sunni and Shiite areas. But uncertainty about the KRG’s standing and fear of angering the central Iraqi government have so far kept the major international oil companies away.
Nonetheless, the KRG has signed more than a dozen deals at this point with non-American companies. But the Hunt deal appears to be riskier than earlier ones. J. Jay Park, head of the oil and gas practice at Macleod Dixon in Calgary, negotiated a March 2006 contract between the KRG and the Canadian company Western Oil Sands Inc. He says that deal and others were explicitly ratified in the new Iraqi constitution. “The Hunt contract doesn’t benefit from the constitutional guarantee that the earlier contracts benefit from,” he says. “The legal regime that provides the additional detail you’re looking for hasn’t been fully defined yet.” Until Iraq passes a national oil law, Park says, “there remains doubt as to how petroleum authority is to be applied.”
Despite the doubts, Hunt is busy generating facts on the ground in Iraq. Company engineers began conducting seismic surveys in the fall, and hope to drill their first exploration well next year. The political questions remain real: When will Iraq pass a national oil law? Will Kurdistan win some or all of its independence?
But for the wildcatters and their law firm, oil is too important to be left in the control of the diplomats.