February 26, 2010 / 10:27 AM / 10 years ago

UPDATE 2-Iraq says talks with Shell prolonged, continue

* Initial agreement expected to be extended

* New government will take on talks after March vote

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By Rania el-Gamal

BAGHDAD, Feb 26 (Reuters) - Talks between Iraq and Royal Dutch Shell (RDSa.L) on a major natural gas deal near the southern oil hub of Basra have dragged on longer than expected but are continuing, Iraqi oil officials said on Friday.

Iraq has been working to finalise a multi-billion-dollar joint venture between its South Gas Company, Shell and Mitsubishi (8058.T), which would capture huge amounts of gas for domestic use or export, currently being wasted through burning.

“The ministry went a long way in the talks with Shell and it is still continuing negotiations,” Asim Jihad, Iraq’s Oil Ministry spokesman, said. “Iraq has an ambitious plan to invest in its gas sector.”

Another senior oil official told Reuters that an initial deal signed in 2008 with Shell will be extended while discussions on a final agreement continue.

“The ‘heads of agreement’ will be extended and the project will be presented to the next government,” the official said on condition of anonymity.

The gas venture, once in place, will be a major feature of Iraq’s plans to revamp and modernise its dilapidated oil and gas facilities and to boost sluggish output.

A final deal on the gas venture was expected to be signed next month, a third official said on condition of anonymity, but was postponed until after Iraq’s national elections on March 7.

He said the initial agreement was set to expire on March 22 but that Shell had requested an extension.

Officials at Shell declined to comment on media reports that talks with Iraq had been halted.

Shell, Europe’s largest oil company, signed in January final contracts for the development of supergiant Iraqi oilfields Majnoon and West Qurna Phase One.

The deals are part a series Iraq has signed with international oil companies over the past year, the mainstay of its bid to boost oil output capacity to 12 million barrels per day (bpd), rivalling top producer Saudi Arabia.

Output is about 2.5 million bpd now.

Iraq’s proven natural gas reserves are 112 trillion cubic feet, a 2007 report from the U.S. government’s energy statistics unit said. (Reporting by Rania El Gamal in Baghdad and Aref Mohammed in Basra; Editing by Michael Urquhart)

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