Iraq must overhaul the draft of its long-delayed oil law but will press ahead with developing its petroleum industry while debate on the divisive legislation drags on, Deputy Prime Minister Hussain al-Shahristani said.
Investors have been waiting for approval of a hydrocarbon law to guarantee a more solid legal framework for exploration. The law has also been seen as pivotal to reconciling Iraq's political factions as the country rebuilds after years of war.
But Iraq is nevertheless already developing oilfields, signing billions of dollars in service contracts with international companies, under old legislation.
The draft oil law was approved by the cabinet in 2007 but has faced opposition, mainly from semi-autonomous Kurdistan.
"Frankly, the hydrocarbons draft approved by cabinet in 2007 is not fitting to become law. It requires major changes," Shahristani, who has special responsibility for energy, told Reuters in an interview.
"We signed contracts with global oil majors and no one asked if there is a hydrocarbon law or not," Shahristani said.
Work began on the law in 2005 under a new constitution. It has remained stymied by differences between majority Arabs and minority Kurds over revenue-sharing and control over some fields in their region.
Besides deciding who controls the country's oil reserves and setting up a new state oil company to oversee the industry nationwide, the law aims to provide a more solid legal framework for attracting foreign investment.
The next meeting of the Organization of the Petroleum Exporting Countries (OPEC) is due on June 8 and Shahristani said he saw no need for the body to reconsider its production target.
He said he expected world oil prices to stay at an average of more than $100 a barrel for the rest of the year.
On Tuesday, July Brent raised $2.47 to a high of $112.57 per barrel, before slipping back a little to trade around $112.25 by 1324 GMT. U.S. light crude futures raised $2.12 to $99.82.
Shahristani said Korea Gas Corp (KOGAS) has also agreed to sign a development contract for the Akkas gas field and the deal could be finalized next month. Akkas, the country's largest gas field, has estimated reserves of 5.6 trillion cubic feet.
"KOGAS informed us about them agreeing to come to Baghdad and sign the Akkas contract. We told them they could choose a partner to jointly develop the gas field," Sharistani said.
Iraq earlier this month had asked Korea Gas whether it could develop the Akkas field on its own after KazMunaiGas Exploration Production withdrew from the deal.
Shahristani said Royal Dutch Shell and Mitsubishi had now also agreed on all technical and contractual aspects of another gas deal and expected the oil ministry to present a final draft of the accord to cabinet this month.
Iraq has been negotiating a $12 billion deal with Shell that would give the country access to more than 700 million cubic feet of gas associated with oil production at three oilfields that could be used for power generation.
Shahristani said Iraq has set its future production targets of 12 million barrels per day based on his expectation that world oil demand would increase by 20 million bpd over the next 20 years and Iraq would be key to meeting new demand.
"We expect market demand for oil to increase by one million bpd from now into the next 20 years and Iraq's production will be the main source meeting this demand," Shahristani said.
Iraq is currently producing 2.75 million barrels per day (bpd), including 130,000 bpd from oilfields in northern Kurdish region.
Shahristani stressed that Iraq would not discuss the country's future quota in OPEC until reaching production of more than four million barrels per day.
Iraq is one of OPEC's founder members but has been exempt from quotas for years due to sanctions and war.
Reaching its proposed capacity target of around 12 million bpd would put Iraq alongside OPEC giant Saudi Arabia.
Baghdad holds ambitious deals with the world's biggest oil majors that envisate boosting output to that level in around seven years. But most analysts say a target of around 8 million bpd output is more realistic.