Thursday, February 16, 2012

Iraq Sanctions Exxon For Deal With Kurdistan


After issuing a slew of threats to retaliate against Exxon for signing an initial agreement to work in Kurdistan, the Oil Ministry finally followed through. In February 2012, it announced that Exxon would be excluded from the fourth bidding round for twelve oil and gas fields, which is scheduled for May. This is the first time that Baghdad has decided to confront a major oil corporation. It has done the same with other companies, but they did not have the standing of Exxon. This could backfire against the central government, as it is losing its leverage in this dispute.

(Business Pundit)
For the last three months, the Iraqi government and Exxon have been in a war of words over its contract with the Kurdistan Regional Government (KRG). In October 2011, the foreign firm signed a deal with the Kurds to work on six oil and gas blocks. It was not made public until November however. When it did, Baghdad immediately condemned the move, and issued a barrage of attacks upon Exxon. Those included demanding that it choose between working in northern or southern Iraq, sanctioning the corporation, or cancelling its contract for the West Qurna Phase 1 field in Basra. The Oil Ministry also threatened to exclude Exxon from the fourth bidding round to be held in May 2012. During all this, the company refused to publicly respond to Baghdad. The Iraqi government has consistently demanded that all oil contracts go exclusively through its Oil Ministry, and declared any deals signed with the Kurds as illegal. Deputy Premier Hussein Shahristani, who was previously the Oil Minister in the first Nouri al-Maliki administration, was the leader of this policy. Shahristani has always insisted on the primacy of the central government over the country’s energy policy, which is why it is opposing the Exxon move.

Baghdad has now taken the next step in this confrontation. On February 13, it announced that it would follow through with its threat to not allow Exxon to participate in the 2012 auction. This was a reversal, because as late as February 9, there were reports that Exxon was still on the list of bidders. Earlier, in what may be an unrelated event, the Oil Ministry took away the company’s lead role in a water injection plant in Basra that was to service the major oil fields there. Officially, it said this was not retaliation for the Kurd deal, but it’s timing makes it suspicious nonetheless. Together, this marks the first time that the Iraqi government is taking on a major oil firm. Before, it has blacklisted other energy companies from operating in southern Iraq for doing business in Kurdistan, but none of those were as large as Exxon. They also were not already operating in southern Iraq.

The Iraqi government’s increasingly confrontational stance towards Exxon may not payoff. The business is owed millions of dollars for its work at West Qurna 1, it does not like the terms of the technical service deal it originally signed with the Oil Ministry in 2009, and government red tape slows all work in the country. Kurdistan does not offer the same amount of oil and gas available in the south, but the terms, and business and security environment are much better. It’s probably for this reason that Exxon has remained publicly silent about this whole affair, while quietly sending its people to scout out the north. The environment in southern Iraq may simply not have the payoffs that Exxon was hoping for, which is why they are willing to sacrifice their position there, and move to Kurdistan.

SOURCES

Jacobs, Caroline and Boselli, Muriel, “UPDATE 3-Total latest oil group to shift Iraq focus to Kurdistan,” Reuters, 2/10/12

Neuhof, Florian, “Iraq blocks Exxon from next round of licensing,” The National, 2/14/12
- “Iraq oil bid delay seen as positive,” The National, 2/1/12

Pfeifer, Sylvia, “Exxon signs Kurd exploration contracts,” Financial Times, 11/10/11

Reuters, “Iraq sets new condition for Exxon on Kurdistan,” 2/10/12

Tawfeeq, Mohammed and Isidore, Chris, “Iraq blocks Exxon Mobil from oil exploration bids,” CNN Money, 2/13/12

Al-Wannan, Jaafar, “Iraq: Exxon Mobil to participate in fourth oil licensing round,” AK News, 2/9/12

No comments: