Interview- Iraq sets new Condition for Exxon on Kurdistan

[Shelley]

INTERVIEW-Iraq sets new condition for Exxon on Kurdistan

Thu Feb 9, 2012 4:28pm GMT Print | Single Page[-] Text [+]

By Peg Mackey

BAGHDAD, Feb 9 (Reuters) - Exxon Mobil can

keep developing Iraq's supergiant West Qurna-1 oilfield,

provided it freezes a plan to move into semi-autonomous

Kurdistan that has fanned tensions between Baghdad and Arbil, a

senior Iraqi oil official told Reuters on Thursday.

Abdul Mahdy al-Ameedi, head of Iraq's contracts and

licensing division, also said Exxon has been stripped of its

role as project leader for a multi-billion-dollar water

injection scheme that is core to the development of Iraq's

supergiant oilfields in the south.

He insisted the move was not in retaliation for Exxon's

involvement with the Kurdistan Regional Government (KRG).

Baghdad has been threatening to rip up the West Qurna-1

contract ever since Exxon's deal in Kurdistan came to light

three months ago.

But a new condition was set by Oil Minister Abdul-Kareem

Luaibi at a meeting with Exxon executives in Baghdad at the end

of last month.

"The minimum requirement, if Exxon doesn't want West Qurna

to be terminated, would be to inform the Ministry of Oil in

writing that it will freeze its contracts in Kurdistan until

there is an agreement between the KRG and Baghdad or the

Ministry of Oil approves the contracts," Ameedi said.

Exxon was the first oil major to test the water by signing

up for six blocs with the KRG, which is locked in a feud with

the Arab-dominated central government over land and oil rights.

Three of the blocs are in areas disputed by Arbil and Baghdad.

"The KRG can't award blocs outside the border of Kurdistan,"

said Ameedi.

Baghdad's new condition for Exxon follows previous hardline

statements, but officials acknowledge their concern that more

companies involved in Iraq's massive oil opening could follow

Exxon into the more stable north.

"It is a big concern," said Ameedi. "We don't intend to lose

our relations with any international oil companies that have

signed contracts with the Ministry of Oil. It's their choice to

be with us."

Despite Baghdad's tough line, Ameedi said it was business as

usual for Exxon at West Qurna-1. "They are still spending money

and working," he said.

Exxon, with minority partner Royal Dutch Shell, has

already raised output to about 390,000 barrels per day from

244,000 bpd when the pair signed up for West Qurna-1 in early

2010. The contract targets output of 2.825 million bpd by 2017.

Industry sources said they doubted the U.S. major would

respond to Baghdad's latest warning and said the company was

likely to continue with its low-profile mobilisation in Arbil.

Major oil investors have been frustrated by infrastructure

bottlenecks, poor coordination, delayed payments and Iraqi red

tape in southern Iraqi oil projects. Exxon has yet to comment on

the Kurdistan play.

Iraq signed a series of deals with international oil firms

such as Exxon to boost its output capacity to 12 million bpd by

2017 from about 2.9 million bpd now. But it may eventually lower

the target due to infrastructure constraints.

UNACCEPTABLE DELAYS

The crucial water injection scheme that Exxon had led until

this week has been on the books for two years. But Iraq's

state-run South Oil Company and SCOP, an oil ministry unit,

would now take over leading the project, Ameedi said.

"The progress that has been made is unacceptable," he said,

blaming delays on the companies involved - Exxon, BP, Eni and

Lukoil.

"Exxon is no longer leading this. We told them to stop all

new activity from yesterday," said Ameedi. "It was because of

delays associated with this megaproject."

Rumours were rife when Exxon's deal surfaced that Iraq's

Deputy Prime Minister for Energy Hussein al-Shahristani, an

ardent critic of Arbil, would remove Exxon as the lead company

as a punishment.

But Ameedi said Iraq could not take any action against Exxon

because of the Kurdistan bloc deal until the central government

had drafted its formal legal response.

Exxon at West Qurna, BP at Rumaila and Eni at Zubair have

all reached the first production milestone that triggers cost

recovery and fee payment.

Ameedi said payments were progressing despite delays because

of initial misunderstandings over the invoicing procedures until

the ministry formulated a new approach.

While BP and Eni have signed export oil sales agreements

that allow them to be repaid in crude liftings, Exxon has

steadfastly refused and has opted for cash payment. So far the

company has received $470 million, having spent $911 million,

said Ameedi. [TABLE: ].

"Now we are on the right track. I don't expect any delays in

payments this year," he said.

GULF EXPORT TERMINAL

Addressing infrastructure constraints, Ameedi said Baghdad

will start to export on Sunday from a new Single Point Mooring

(SPM) in the Gulf. Export capacity in the south will then rise

from roughly 1.7 million bpd to 2.6 million bpd.

That will be enough to accommodate the extra oil that is

expected to be pumped from southern oilfields this year. Iraq's

production averaged 2.7 million bpd in 2011, with exports

running at 2.2 million bpd. Official targets for this year are

3.5 million bpd for production and 2.6 million bpd for exports.

Industry sources involved in Iraq's oil expansion are more

cautious. They see production growing to 3 million bpd and

exports running at 2.5 million bpd.

Ameedi said he expected growth of 550,000 bpd this year from

the giant oilfields developed by foreign partners in the south.

He said output at Rumaila, Iraq's biggest producer, is

expected to average 1.35 million bpd this year - up from 1.14

million bpd in 2011.

Production there was affected by bad weather, tight storage,

operational problems with the field's ageing kit and attacks on

export pipelines outside the field that hit Rumaila's output.

The Iraqi oil official said good progress and "prep work"

were being done by contractors on gas field development

contracts awarded in the country's third auction.

Turkey's TPAO at Mansuriyah has submitted its provisional

plan. Korea's Kogas at Akkas is preparing a

preliminary plan and Kuwait Energy has submitted its scheme for

the Siba gas field near the border with Kuwait.

As for the fourth licensing round, which focuses on

exploration, Ameedi said delays to the auction would give the

companies and the oil ministry more time to prepare. Iraq once

again delayed the round for 12 new gas and oil exploration

blocks to May 30-31 after making major changes to the contract.

Iraq's Oil Development Programme Update

Field Operator Output Est. Spending Payment

2011 2012 end '11 end '11

Rumaila BP 1.14 1.35 2.20 1.94

WQurna-1 Exxon 0.31 0.43 0.91 0.47

Zubair Eni 0.24 0.29 1.10 0.53

Missan CNOOC 0.10 0.14

Majnoon Shell 0.05 0.11

Halfaya CNPC 0.00 0.07

Total 1.84 2.39 4.21 2.94

Output in '000 barrels per day

Spending/Payment $ billion

Figures for spending and payment are only for companies that

have reached Iraq's initial production threshold, which triggers

cost recovery and payment.

Source: Iraq Ministry of Oil

(Reporting by Peg Mackey; editing by Patrick Markey and Jason

Neely)

© Thomson Reuters 2012 All rights reserved

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[amhvl]

Make no mistake. Exxon threw a huge monkey wrench into both the Erbil agreement and the HCL, and they couldn’t care less. This move emboldened the Kurds to demand more…a lot more, which has only hampered Iraq’s progress and of course, postponed the fruition of our investment. Hopefully Exxon will get smacked hard enough to discourage this type of under-handed business dealings in the future. Nice find Shelly!