Zal Khalilzad, the US Ambassador to Iraq (soon to be Ambassador to the UN), did a recent (3/3/07, p.A15) Washington Post op-ed on Iraq's Council of Ministers approval of an Oil and Natural Gas Law. He praised their achievement and said, "oil will serve as a vehicle to unify Iraq and will give all Iraqis a shared state in their country's future." The law must passed the Council of Representatives, but the outlook is very good.
The law makes clear that all Iraqis own the oil and natural gas resources; it creates an account so that the revenues will be shared by all Iraqis, sets up a federal policy making body, assigns the regulatory role to the Oil Ministry, lays out international standards for transparency -- and the legal framework to attract international oil companies and investors to Iraq.
The key is a Production Sharing Agreement (PSA). PSAs have been in use since Unocal and the Government of Indonesia signed the first one in 1960. In Indonesia then, as in Iraq today, there would be almost no oil or gas exploration, development, infrastructure repair and extension, and no facility repairs or construction if the government had to pay. With a PSA, a country that cannot afford such investments can have them made by international oil companies -- at no cost to the government! Further, the nation retains ownership (and ultimately complete control of) the oil and gas fields, infrastructure and refineries, having shared in the revenues as soon as the oil or gas begins to flow.
In return for an exclusive right over a specified period (usually 20-25 years), companies invest billions of dollars to explore, develop and bring to market through new pipelines and infrastructure, the oil and gas in a specified area. The companies get 75%-85% of the revenues at the outset to recoup their investment and to make a profit; the government gets the rest. As the company recoups its investment, its revenue share declines and that of the host government rises; by the mid-term of the contract, the government receives more than half, and its share continues to rise. By the end of the contract term, the company and the government have taken out about the same amount of money, and the government takes over the oil or gas field, pipelines and other infrastructure; the company either enters into a different form of contract or walks away from the project.
In the interim, the company and the government may have entered into PSAs for other work in other areas. It's a win-win agreement that will help Iraq develop its resources while maintaining control and ownership.
Look for companies to begin negotiations almost as soon as (or perhaps before) the law is enacted. This will attract investment and help create jobs and stability, and will do so more quickly than many people might expect.