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Exxon Seeks to Quit Flagship Iraq Oil Project

Thursday, 18 October 2012 12:14 PM

Exxon Mobil wants to leave its flagship Iraqi oil project after upsetting Baghdad by signing a deal last year with the autonomous northern Kurdish region, which the central government deemed illegal.

The U.S. major was the first company to flex its muscles and challenge Baghdad's authority by signing up for six blocks to explore for oil with the Kurdistan Regional Government (KRG) in October last year.

Concerns over the likely profit margins on the estimated $50 billion West-Qurna-1 project could force Exxon to abandon its stake in this southern oilfield, diplomatic sources said on Thursday.

"Exxon is telling Baghdad: 'We are letting you know we're looking to leave,'" one of the diplomats said. "They are shopping around and looking at all the options."

Exxon stock barely budged on the news, indicating there may be more at stake for Iraq, Kurdistan and regional politics than for Exxon shareholders.

The oil contracts row is part of a broader battle between the Baghdad government and Kurdistan over oil rights, territory and regional autonomy, which is straining Iraq's uneasy federal union.

And Baghdad has been threatening to rip up the West Qurna-1 contract ever since.

The oil row is just the latest complication in a long-running and deep-ranging dispute between Iraq's Shi'ite Prime Minister Nuri al-Maliki in Baghdad and Kurdistan's President Masoud Barzani based in its capital, Arbil.

Maliki has gone as far as asking U.S. President Barack Obama to force Exxon to pull out of the deal, claiming the firm's actions are a threat to peace.
Iraqi Deputy Prime Minister Hussain al-Shahristani met Exxon Mobil executives in Baghdad in the summer and threatened to kick the company out.

He declined to say on Thursday whether Exxon was pulling out, but told Reuters in an email that Baghdad was sticking to its line that all contracts signed with the KRG without the approval of Baghdad were illegal.

"All companies that entered in such contracts were asked to cancel them or pull out," Shahristani said. "Exxon Mobil can be contacted about their decision."

Iraqi oil sources said Exxon has not informed Baghdad of its interest in exiting West Qurna.

Exxon declined to comment, as did the U.S. State Department.

Despite Baghdad's tough talk, Exxon chief Rex Tillerson said in March the company was committed to expanding output at West Qurna, where it's in charge, as well as exploring in Kurdistan.

And it's been business-as-usual for Exxon at West Qurna-1, now pumping more than 400,000 barrels a day and earning a hefty chunk of Iraq's central government revenue.

Exxon, with minority partner Royal Dutch Shell, signed up for the project — which targets output of 2.825 million barrels per day by 2017 — in early 2010. By the end of last year, the pair had spent just under $1 billion.

But the pace of expansion has been slow. Exxon, like other foreign operators, has complained that infrastructure bottlenecks, payment delays and bureaucratic red tape are hampering progress.

It was that frustration, say oil executives, that led Exxon to make its bold move into Kurdistan, which offers more lucrative production sharing contracts and a safer operating environment.

A further setback came in February, when Exxon was stripped of its role as project leader for a multi-billion-dollar water injection scheme that is core to the development of Iraq's southern oilfields.

"That really pushed back the time line on development," said an industry source. "In their minds, that played with the profitability of the contract."

Exxon's departure from southern Iraq now hinges on its ability to find a company willing to buy out its stake in West Qurna-1, say industry sources.

"If they can find the right buyer, they will pull out," said an industry executive. "It's an unusual move for Exxon. They usually don't give up."

Exxon is meanwhile raising its profile in Kurdistan, with drilling set to begin in a few months. A senior Exxon delegation was last week in Arbil, where the company is setting up an office, they said.

Other majors such as Chevron, Total and Gazprom have joined Exxon with their own deals in Kurdistan, provoking warnings from Baghdad.

© 2018 Thomson/Reuters. All rights reserved.

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Exxon Mobil wants to leave its flagship Iraqi oil project after upsetting Baghdad by signing a deal last year with the autonomous northern Kurdish region, which the central government deemed illegal.
Thursday, 18 October 2012 12:14 PM
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