LONDON: ExxonMobil wants to leave its flagship Iraqi oil project after upsetting Baghdad by signing a deal last year with the autonomous northern Kurdish region, which the central government deemed illegal.
The US major was the first company to flex its muscles and challenge Baghdad’s authority by signing up for six blocks to explore for oil with the Kurdistan Regional Government (KRG) in October last year.
Concerns over the likely profit margins on the estimated $50bn West-Qurna-1 project could force ExxonMobil to abandon its stake in this southern oilfield, diplomatic sources said yesterday. “ExxonMobil is telling Baghdad: ‘We are letting you know we’re looking to leave,’” one diplomat said. “They are shopping around and looking at all the options.”
ExxonMobil stock barely budged on the news, indicating there may be more at stake for Iraq, Kurdistan and regional politics than for ExxonMobil shareholders. The oil contracts row is part of a broader battle between the Baghdad government and Kurdistan over oil rights, territory and regional autonomy, which is straining Iraq’s uneasy federal union.
And Baghdad has been threatening to rip up the West Qurna-1 contract ever since. The oil row is just the latest complication in a long-running and deep-ranging dispute between Iraq’s Shia Prime Minister Nuri Al Maliki in Baghdad and Kurdistan’s President Masoud Barzani based in its capital, Arbil.
Maliki has gone as far as asking US President Barack Obama to force ExxonMobil to pull out of the deal, claiming the firm’s actions are a threat to peace. Iraqi Deputy Prime Minister Hussain Al Shahristani met ExxonMobil executives in Baghdad in the summer and threatened to kick the company out.
He declined to say whether ExxonMobil was pulling out, but told Reuters in an email that Baghdad was sticking to its line that all contracts signed with the KRG without the approval of Baghdad were illegal. “All companies that entered in such contracts were asked to cancel them or pull out,” Shahristani said. “ExxonMobil can be contacted about their decision.”
Iraqi oil sources said ExxonMobil has not informed Baghdad of its interest in exiting West Qurna. ExxonMobil declined to comment, as did the US State Department. Despite Baghdad’s tough talk, ExxonMobil chief Rex Tillerson said in March the company was committed to expanding output at West Qurna, where it’s in charge, as well as exploring in Kurdistan.
And it’s been business-as-usual for ExxonMobil at West Qurna-1, now pumping more than 400,000 barrels a day and earning a hefty chunk of Iraq’s central government revenue. ExxonMobil, with minority partner Royal Dutch Shell, signed up for the project - which targets output of 2.825 million barrels per day by 2017 - in early 2010. By the end of last year, the pair had spent just under $1bn.
But the pace of expansion has been slow. ExxonMobil, like other foreign operators, has complained that infrastructure bottlenecks, payment delays and bureaucratic red tape are hampering progress. It was that frustration, say oil executives, that led ExxonMobil to make its bold move into Kurdistan, which offers more lucrative production sharing contracts and a safer operating environment.
A further setback came in February, when ExxonMobil was stripped of its role as project leader for a multi-billion-dollar water injection scheme that is core to the development of Iraq’s southern oilfields. “That really pushed back the time line on development,” said an industry source. ExxonMobil’s departure from southern Iraq now hinges on its ability to find a company willing to buy out its stake in West Qurna-1, say industry sources.
Reuters
