Iraqi Government Could Toughen Position Against Exxon’s Grab In Kurdistan

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Exxon Mobil

The Iraqi government said that it had received a favourable response from the U.S. president over an earlier letter seeking to block Exxon Mobil‘s (NYSE:XOM) deal with the Kurdish Regional Government (KRG). According to the Iraqi prime minister, the letter emphasised the U.S. government’s regard for the Iraqi constitution. [1]The Iraqi government deems exploration contracts with regional governments unconstitutional and now says that it will take all measures to stop the implementation of these contracts. The statement follows Chevron’s (NYSE:CVX) foray into the Kurdish region with the purchase of controlling stake in two blocks in Kurdistan.

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Regional clash

The issue of granting oil exploration rights is at the heart of the larger conflict between the Iraqi central government in Baghdad and the KRG, which is demanding greater autonomy in running the affairs of Kurdistan. The region could hold as much as 40 billion barrels of oil and is offering exploration companies very attractive licensing terms to lure players, as the Iraqi government has retaliated harshly against firms that have struck such local deals.

Exxon was barred from participating in the last licensing round held by the Iraqi government and reports suggest that Baghdad may take harsher steps against Chevron, which is presently not involved in any projects in Iraq. Reports suggest that Iraq could cancel its contract to supply Chevron with 167,000 bbl/day. [1]

According to sources, the Iraqi government could also improve the terms of service offered to oil companies that are developing its giant southern fields. [1] Presently, Iraq compensates operators with a service fee, such contracts are not viewed as being attractive by many companies. However, with the top two U.S. oil companies shifting attention to Kurdistan and other players looking to strike similar deals, the Iraqi government may be forced to offer developers better term of service. According to sources quoted by Reuters, Washington on its end is warning oil companies to consider the legal risks of local deals with the KRG, but is unwilling to force private players away from exploring options.

Iraq is estimated to be the major center for much of the growth in oil production in the Middle East and Asia region and presents a significant opportunity for companies to increase their production.

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  1. WRAPUP 2-Iraq gets “positive” Obama response on Exxon concern, Reuters [] [] []