Iraq excludes Exxon from May energy auction

AP News
Posted: Apr 19, 2012 9:03 AM
Iraq excludes Exxon from May energy auction

Iraq's Oil Ministry said Thursday that the U.S. oil giant Exxon Mobil Corp. is not allowed to bid in the May energy auction because of its oil deals with the northern self-ruled Kurdish region in Iraq.

The Texas-based Exxon signed contracts with the Kurds last October to search for oil in six areas, bypassing the central government in Baghdad, which maintains that it must ratify all deals. Some of the contracts cover areas located in a land claimed by both Kurds and Arabs.

The deputy head of the Oil Ministry's Licensing and Petroleum Contracts Department, Sabah al-Saidi, told The Associated Press that the reason for the move was Exxon's refusal to relinquish its disputed deals with the Kurds.

"Exxon has been removed from the list of qualified companies because it refused to abandon the deals with the Kurdish region as requested by the Ministry of Oil," al-Saidi said.

The Kurds and Arab-led government in Baghdad have been at loggerheads over who has the final say over the development of resources. The Kurdish regional government has unilaterally signed scores of oil deals, mostly with mid-sized companies. Baghdad considers the deals illegal and has blacklisted the companies involved.

Baghdad recently said that Exxon sent two letters assuring that it would freeze the Kurdish deals until the central government and the Kurds resolve their differences. But the Kurds have maintained that the contracts are still valid and that Exxon is committed to them.

Exxon declined comment on the Oil Ministry's decision.

Unlike the deals offered by Baghdad that pay only a fixed fee to developers for their services, the Kurds offer the more lucrative production-sharing deals under which the companies are entitled to a share of the profits from the oil produced.

Samuel Ciszuk, a consultant at KBC Energy Economics, said that because of this, Thursday's decision is not a big blow to Exxon.

"The much more appetizing Iraqi Kurdistan (regional government) contracts and terms might feel like a better choice by Exxon at this stage," Ciszuk added.

Thursday's announcement came as the ministry published the final list of 47 oil companies that are qualified to bid in the May 30-31 auction for 12 exploration blocs nationwide.

Nearly 70 percent of the blocs on offer hold natural gas and the rest a combination of oil and gas. They are expected to add about 29 trillion cubic feet of natural gas to the current 126.7 trillion cubic feet in reserves, and about 10 billion barrels of oil to the current proven 143.1 billion barrels of proven reserves.

Since 2008, Iraq has awarded 15 oil and gas deals to international energy companies, the first major investments in the country's energy industry in more than three decades.

Under a previous deal with Baghdad, Exxon and Shell are developing one of Iraq's biggest oil fields, the 8.6 billion-barrel West Qurna Stage 1 field in southern Basra province.

Baghdad aims to raise the daily output to 12 million barrels by 2017 _ a level that would put it nearly on par with Saudi Arabia's current production capacity.

Many analysts say that target is unrealistic, because of the degraded state of the industry's infrastructure after wars and an international embargo that lasted more than a decade.