New Twists In Exxon-Kurd Oil Deal

In November 2011, Kurdish officials announced that energy giant Exxon Mobil had signed a deal to explore for oil and gas there. The Iraqi central government considers all such contracts illegal, and immediately protested. Recently two new bits of information have been added to this on-going controversy. First, three of the six fields that Exxon signed to work on are in disputed territories outside of the Kurdish Region, and Prime Minister Nouri al-Maliki said that Exxon’s current contract to work in southern Iraq would not be cancelled, because it had put on hold its deal with the Kurds. Exxon stepped into a middle of a briar patch when it agreed to work with the Kurds, and it is now trying to find a way out of its predicament.

Exxon’s contract with the Kurds was revealed in November 2011. Originally, the two sides came to terms on October 18. It wasn’t made public until early November, when Kurdistan Regional Government (KRG) Natural Resource Minister Ashti Hawrami announced it. Baghdad immediately complained, saying that all deals with the Kurds are illegal because they did not go through the Oil Ministry. Deputy Premier Hussein Shahristani who is in charge of energy policy, said that Exxon had to decide on whether it wanted to work in northern or southern Iraq. In 2009, Exxon won a bid to develop the West Qurna 1 field in Basra along with Royal Dutch Shell. Finally, Oil Minister Abdul Karim Luaibi claimed that the Kurds had to decide whether they wanted to be part of Iraq or be an independent country, meaning that he did not believe they had the right to sign their own oil contracts. At the root of the problem are the conflicting energy policies of the KRG and Baghdad. Each side believes that it can sign contracts without consulting with the other. They have also offered different kinds of terms to oil companies. The Oil Ministry has offered technical service contracts that require businesses to reach a certain production level before they can get paid, which limits profits, and favors the government. The Kurds on the other hand, have signed production sharing agreements that require companies to put up a lot of money up front for development, but offer larger profits, and the corporations can claim the oil reserves in the fields they work on in their own books. Baghdad has held the upper hand in this dispute because it controls the majority of the country’s oil reserves, and the oil infrastructure that controls exports.

ExxonMobil already has a contract with the central government to work on the West Qurna 1 field in Basra, which could have been threatened by its Kurdish deal (energy-pedia.com)

Because of the central government’s threats, Exxon has allegedly backed off. In early December, it was reported that the company had put its Kurdish deal on hold. Prime Minister Maliki also told the press that it would not cancel Exxon’s West Qurna 1 contract. Then, while visiting Washington in mid-December, the premier met with Exxon officials, and announced that they were reconsidering their negotiations with the Kurds. It appeared from the beginning that Baghdad would win this argument. Despite the stricter contract, West Qurna 1 is one of the five largest oil fields in the country with estimated reserves of 8.7 billion barrels. It is currently producing 370,000 barrels a day. In comparison, all Exxon could do in Kurdistan is explore for oil and gas, because it would have to have permission from Baghdad to sell anything it produced abroad.

(Independent)

If Exxon were to ever go ahead with its Kurdish plans, it would cause even more conflict. Three of the six tracts it was expected to work on were in disputed territories in Ninewa and Tamim provinces. The disputed areas are outside of the Kurdistan region, but have mostly been occupied and administered by it since the 2003 invasion. The Kurds claim them as being historically Kurdish and wish to annex them. Many Arabs are opposed to this, and consider it a land grab. Trying to bring in a major foreign corporation into that mix would only inflame passions.

The Kurds have signed seven other deals that involve disputed territories, but those were with small to medium sized companies. Those include America’s Hunt Oil for the Ain Sifni bloc, Houston’s Prime Natural Resources for the Shakal field, the United Arab Emirates’ Dana Gas for the Khor Mor field, Canada’s Shamaran Petroleum Corporation for the Pukhana field, Australia’s Oil Search for the Taza field, Canada’s Longford Energy for the Chia Surkh field, and Russia’s Norbest for the Hawler field. Those are spread across Diyala, Ninewa, and Tamim governorates. Since these areas are under de facto control of the KRG, authorities there have not shied away from awarding foreign companies exploration rights in them. It is just another sign of the division between the central and regional governments, not only over the country’s natural resources, but over the disputed areas as well.

While nothing is official yet, it seems like Exxon will quietly step away from its deal with the Kurds. Working in southern Iraq is simply too lucrative. Most of Iraq’s oil reserves are in the south, and the company is working on one of the largest fields there. It has already invested millions, and is planning on a major infrastructure project in Basra as well to help with the extraction of oil. That’s too much to gamble with just to do exploration work in Kurdistan. It’s still not clear why Exxon made this move in the first place, but now that Baghdad has applied pressure on the corporation it is changing its mind. This all shows the continued differences between the Kurds and the central government over how to manage the countries resources, and resolve the disputed territories. The only way to resolve the first problem is to pass a new oil law, but that has been on hold for several years now. In fact, the Exxon contract could have derailed the latest effort to discuss a new energy bill in Iraq’s parliament. Determining the future of the disputed areas has proven just as intractable. The 2005 constitution laid out a series of steps to decide what to do about each contested district, but they were never implemented. Most Arab political parties are unwilling to allow the Kurds to expand its territory, while the Kurds are not going to stop administering those areas until there is a final decision on them. Both of these issues have been deadlocked since the first post-Saddam government was formed in 2005, and do not look to be solved in the near future either. If Exxon would have tried to move ahead with its Kurdish contract, it would have just made the situation worse on both of these issues.

SOURCES

Agence France Presse, “Exxon to reconsider Kurdistan deal: Iraqi PM,” 12/15/11

- “Kurds must decide to stay or leave: Iraq minister,” 12/9/11

Brosk, Raman, “Rising criticism of Shahristani’s position in Exxon Mobile dispute,” AK News, 11/15/11

Cockburn, Patrick, “Exxon’s deal with the Kurds inflames Baghdad,” Independent, 12/9/11

Dagher, Sam, “Iraq Won’t Cancel ExxonMobil Deal,” Wall Street Journal, 12/9/11

Kramer, Andrew, “Iraq Criticizes Exxon Mobil for Its Deal With the Kurds,” New York Times, 11/13/11

Lando, Ben, “Hunt Oil knew KRG oil deal in disputed territory,” Iraq Oil Report, 8/25/11

Sowell, Kirk, “Inside Iraqi Politics No. 28,” 12/5/11

Zulal, Shwan, “time to move on: iraq’s oil and gas impasse explained,” Niqash, 12/1/11