Chevron Purchases Kurdistan Blocks Despite Iraq’s Objections

by Trefis Team
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Chevron (NYSE:CVX) may purchase the 80% stake held by Indian conglomerate Reliance in two blocks in the Kurdish region in Iraq, according to reports. [1] There was speculation that Chevron was looking to follow its rival Exxon Mobil (NYSE:XOM) into signing exploration deals with the Kurdish Regional Government (KRG). The Iraqi government disputes the validity of oil exploration contracts with local authorities and has penalized companies for exploration deals with the KRG in the past. Exxon was blocked from participating in the latest well auctions in Iraq because of the exploration deal it struck with the KRG last year.

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Disputed territory

According to sources quoted by Reuters, Chevron is in talks with Reliance to purchase its stake in the Sarta and Rovi blocks in Kurdistan. [1] Estimates value the deal at around $300 million. [2] Reliance entered into contracts with the KRG in 2007 to explore the blocks. Its stake in the fields was reduced to 80% in 2010 after the KRG awarded a 20% stake to an Austrian group. Kurdistan may hold up to 40 billion barrels of oil and significant reserves of natural gas, but exploration activity remains suppressed because of the dispute over permission rights. In order to entice explorers, the KRG has been offering attractive production sharing agreements. And its efforts bore fruit last year when Exxon entered into a deal to explore six blocks in the region, drawing severe criticism from Baghdad.

Chevron failed to get into any significant contracts in Iraq in the four licensing rounds held by the country. Service fee based contracts offered by the Iraqi government are not seen as lucrative enough by many players, forcing companies to sign riskier agreements with the KRG, despite the associated geopolitical risks. Iraq is expected to account for a major portion of the increase in oil production in the region over the next several years. Explorers such as Chevron are keen on boosting production here for long-term output growth.

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Notes:
  1. Chevron buying two Kurdistan blocks from Reliance-sources, Reuters [] []
  2. RIL set to sell Kurdistan blocks, The Telegraph []
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