Iraq has the world’s fifth-largest proven oil reserves with 153 billion barrels (February 2017), and is OPEC’s second-largest crude oil producer with an average of 4.4 million bbl/d in 2017.

Historically, the oil industry in Iraq has witnessed a game of tug-of-war between International Oil Companies ("IOCs") and Iraqi national oil companies, with power and control shifting numerous times between the two camps over the decades. The Iraqi oil industry began in the 1920s when oil was struck in 1927 by the Turkish Petroleum Company, later known as the Iraqi Petroleum Company and which included a consortium of western IOCs. Several decades later, the Iraqi National Oil Company (INOC) was established in 1966 to manage and operate most of the aspects of the Iraqi oil industry. Subsequently, the nationalisation of Iraqi oil sector was completed in 1975; and in the following decade, the INOC was merged and subsumed by the Ministry of Oil ("MoO") in 1987.

In recent years, the post-Saddam era witnessed the return of the IOCs. As of 2009, exploration and production in Federal Iraq is done mainly with the involvement of IOCs who are awarded rights by the MoO represented by regional state oil companies. The award instruments are mainly two unique contractual forms developed by the MoO and called the 'technical service contracts' and the 'development and production service contracts' (for ease of reference, both types are hereinafter referred to as the "TSCs"). Notwithstanding their title, the TSCs are in their essence closer (although not identical) to a traditional Production Sharing Contract rather than a traditional service contract. Under the TSCs, IOCs operate through joint ventures with the relevant regional state oil companies, recover their costs from production, and receive a remuneration fee per barrel produced above certain thresholds. (NOTE: this article does not discuss hydrocarbon activities in the Kurdistan Region of Iraq which are mainly carried out through Production Sharing Contracts awarded by the Kurdistan Regional Government).

Most recently, the Iraqi parliament enacted the Law of Iraqi National Oil Company (the “Law”) on 5 March 2018 to establish a new form of national oil company ("NOC") as an entity enjoying financial and administrative independence and linked directly to the Council of Ministers; thus, distancing it from the Ministry of Oil whose role would become focused on planning and follow-up. It is reported that the Iraqi President has ratified the Law on 25 March 2018. The Law does not enter into force until it is published in the Official Gazette, which is yet to be done (as we understand at the time of writing this article).

But what does the new Law include?

Our initial review of the Law is based on the version published on the official website of the Iraqi parliament pending publication in the Official Gazette.

As per the Law, the NOC is established to ensure the exploration, development, production and marketing of oil resources on behalf of the State of Iraq, to increase production and development of the oil and gas industry, and to develop methods of operation on the basis of efficiency, flexibility and competitiveness to maximize revenues for the benefit of the Iraqi people and in accordance with recognized international standards.

If implemented, the Law would reform the oil sector in Iraq. The NOC would take key operational responsibilities from the MoO and would be granted the right to exercise its authority inside and outside Iraq. The Law provides that within six (6) months from its publication, the MoO shall take the necessary measures to enable the NOC to carry out its activities, including transferring relevant assets, data, etc.

The NOC will fully own a list of state-owned oil companies including:

· The State Organization for Marketing of Oil (SOMO)

· Oil Exploration Company

· Iraqi Drilling Company

· North Oil Company

· Midland Oil Company

· Maysan Oil Company

· Dhi Qar Oil Company

· Basra Oil Company

· Iraqi Oil Tankers Company

The NOC is given the authority to sign exploration and production agreements. It shall manage the upstream sector in addition to developing most aspects of the oil industry such as transportation, storage, sales and marketing.

Perhaps the most critical authorities given to the NOC include the rights to manage the existing TSCs, as the Law provides that all rights and obligations regarding exploration and production licensing rounds shall be transferred to the NOC. In addition, the NOC shall have the right to manage and operate the main oil pipeline network and export terminals. The implementation of such rights would require major legal and contractual restructuring, and could potentially add obstacles to the development of the Iraqi oil industry.

Interestingly, the law exempts the NOC and the above-listed companies from the application of several Iraqi laws including, inter alia, Customs Law, Foreign Residency Law and Law of Government Contracts and its implementing regulations. It is not explicitly stated whether IOCs would also benefit from such exemptions where relevant. Such laws would be replaced by regulations issued by NOC and ratified by the Council of Ministers.

In a nutshell, the content of the new Law, including the uncertainty as to whether it would be implemented or not, add ambiguity and complexity to an Iraqi legal framework that already suffers from a large degree of ambiguity and complexity. This may be a particular risk element to consider as part of Iraq's fifth hydrocarbon licensing round which is currently underway.