The Ministry of Oil of the Republic of Iraq and a wholly owned affiliate of Royal Dutch Shell plc (“Shell”) today signed a Heads of Agreement that sets the commercial principles to establish an incorporated joint venture (the “JV”) between the South Gas Company and Shell for the processing and marketing of all associated natural gas produced in the Governorate of Basra in southern Iraq, an area covering some 19,000 square kilometres.

Some 700 million standard cubic feet per day of natural gas, which is produced by upstream suppliers in association with oil, is currently being flared in southern Iraq. By capturing and processing this natural gas, the JV should create an important and reliable supply of domestic energy, reduce greenhouse gas emissions, and create significant value for Iraq.

The JV will purchase associated natural gas from upstream operations; own and operate existing gas gathering, treating and processing facilities; and invest to repair non-functioning assets and develop new facilities. The JV will be focused initially on creating reliable sources of domestic energy, including liquefied petroleum gas, natural gas liquids, natural gas supply for power generators, and deliveries to local distribution networks. In the future, the JV could develop a liquefied natural gas facility to export natural gas not needed for local domestic use.

The JV structure is the model chosen by the Ministry of Oil as the vehicle to create a world-class natural gas industry in Iraq. South Gas Company will be the 51 percent majority shareholder in the JV, with Shell holding 49 percent.

Speaking at the signing ceremony in Baghdad, Linda Cook, Executive Director for Royal Dutch Shell, said today: “Shell is an industry leader in the global natural gas sector. Iraq has one of the world’s largest natural gas resource bases and I am delighted that the Iraqi Government including the Ministry of Oil have supported Shell as the partner for joint venture with the South Gas Company. We look forward to moving jointly to implement the JV and begin investing in the energy infrastructure in Iraq.”