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 Khalilzad nominated to DNO board, the Norwegian firm that produces oil in Iraq's Kurdistan region

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Khalilzad nominated to DNO board, the Norwegian firm that produces oil in Iraq's Kurdistan region  16.6.2010  

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June 16, 2010

OSLO, — The former U.S. ambassador to Iraq, Zalmay Khalilzad, is slated to join the board of directors of DNO, the Norwegian wildcat firm that produces oil in Iraq's Kurdistan region. Khalilzad’s presence brings new clout – and the potential for controversy – to the Kurdistan Regional Government’s efforts to win Baghdad’s support of its disputed oil contracts with companies like DNO.

Khalilzad has been nominated to the DNO board by RAK Petroleum, an independent but politically connected firm based in the United Arab Emirates with Emirati and Saudi shareholders, which owns 30 percent of DNO. Khalilzad is an RAK board member.

He and RAK Group Commercial Director Shelly Watson are the sole nominees for two seats on the DNO board that will be voted on at the company's June 17 annual meeting, according to DNO shareholders and documents published by the companies.               

Former US ambassador to Iraq, Afghanistan and the UN Zalmay Khalilzad.
Khalilzad was U.S. ambassador to Iraq from June 2005 to March 2007, and then went on to serve as ambassador to the United Nations for the remainder of the Bush administration. He was also ambassador to Afghanistan from 2003 to 2005.

The oil firm has three concessions in Iraq's Kurdistan region, and also operates in the North Sea, Yemen, Mozambique and Equatorial Guinea.

DNO’s work in Iraq has already stoked controversy. Last year it was made public that Peter Galbraith, a former U.S. ambassador to Croatia and adviser to Iraq's Kurds on constitutional issues and its battle with the central government on autonomy, was an early investor in DNO's Kurdish contracts. Galbraith, who has long supported Kurdish autonomy, is currently in a legal dispute with DNO alleging his company, Porcupine LP, is owed compensation after it was squeezed out of the deal.

Galbraith’s business activities appeared to complicate – and some would say, compromise – his role as a disinterested advisor to the Kurds. His attempted investment in Kurdistan’s oil sector caused many observers to see an ulterior, financial motive in his past advocacy for the region’s ability to sign such deals. Galbraith denied any conflict of interest.

The debate over federalism has been a major fault line in the political landscape, as Iraq has struggled to form a cohesive democracy – and DNO was one of the first companies to wedge itself into the gap between the KRG and Baghdad, signing a contract with the Kurdistan region, in 2004.

Baghdad maintains it has the sole rights to strike oil deals, especially with foreign companies. In defiance, the KRG has signed more than two dozen contracts with a variety of firms to explore for and develop oil in the three semi-autonomous northern provinces of Iraq. The Oil Ministry has responded by blacklisting any companies who signed with the KRG from purchasing Iraqi crude or participating in any federal oil deals.

The dispute has also held up broad political reconciliation over questions of regional autonomy and stalled four oil-related laws that would establish a framework for managing the oil sector and distributing revenue.

DNO's Tawke field, which is the most developed of any of the KRG's oil prospects, briefly began exporting last summer via Iraq's northern export pipeline. After three months,
www.ekurd.nethowever, the KRG halted those exports in the midst of a dispute over payments. The KRG claimed that, according to the Tawke contract, it was Baghdad who should compensate the contractors. Baghdad refused.

The Oil Ministry has insisted that the KRG, as signatory to the contract, must pay from the 17 percent of national revenue it receives in the annual budget. A technical agreement was reached earlier this year that would restart exports if past costs incurred by the contractors were paid, but so far the legal, fiscal and technical mechanisms to do this have not been initiated by the central government.

Khalilzad’s presence adds clout to the DNO and KRG side of the debate. He brings a wealth of experience – and a stable of high-profile contacts – from his ambassadorships to Iraq, Afghanistan, and the United Nations. The highest office holders in Iraq and Afghanistan still seek his counsel.

The U.S. embassy has said that Khalilzad now operates solely as a private citizen – a line it has maintained ever since the former ambassador formed Khalilzad Associates, a consulting firm whose activities include prospecting for business opportunities in Iraq.
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