U.S. energy giant Exxon Mobil Corp. will be barred from Iraq’s fourth oil-and-gas licensing auction, scheduled for May, because of the deals it struck with the country’s semi-autonomous Kurdistan region, a spokesman for Iraq’s Deputy Prime Minster for Energy Hussein al-Shahristani said Monday.
The move comes as Iraq’s central government struggles to assert its authority over energy deals struck within its borders amid a continued lack of legislation for the sector. The Iraqi government considers as invalid any deals signed with the Kurdistan Regional Government, or KRG, which in turn states that all and any deals it has signed comply with the country’s new constitution.
"The Iraqi government has decided that Exxon won’t be allowed to participate in the next oil and gas bidding round," spokesman Faisal Abdullah told Dow Jones Newswires.
Iraq is planning to auction 12 promising exploration blocks, seven of which are believed to contain natural gas, and five thought to contain crude. The new bid round, expected to add some 10 billion barrels of crude oil and some 29 trillion cubic feet of gas to Iraq’s reserves, has already been delayed twice amid arguments on whether the contracts offered should be of the production-sharing type wanted by the explorers or the fixed-fee service contracts wanted by the government.
For the next licensing auction, Baghdad has refused to offer industry-standard production sharing contracts, where the oil company owns a portion of the oil in the ground and can profit from its sale. It is instead insisting on service contracts that pay companies a fixed fee for the amount of oil they produce.
The fixed-fee service contracts have worked for the redevelopment of existing oil fields in Iraq–albeit with very slim margins for the companies involved–but are unappealing for many companies facing the gamble of oil exploration, said KBC Energy Economics analyst Samuel Ciszuk.
"You don’t know what you’re going to find," said Ciszuk. "You have all these uncertainties, the most rigid contract framework…and delays building up because of slow state decision-making."
Al-Shahristani has previously said Exxon would have to choose between its deal to explore six areas in Kurdistan and its central-government contract to develop the 370,000 barrels a day West Qurna Phase 1, Iraq’s second-biggest field with proven reserves of more than 8.7 billion barrels.
"We are still waiting for Exxon to answer our letters in which we warned that it has to choose between contracts in Kurdistan and those in southern Iraq," the spokesman said, adding that depending on Exxon’s reply the government would make a decision about its existing contract in the south.
In December, Iraq’s Prime Minister Nouri al-Maliki met with senior Exxon executives during a visit to the U.S., and said afterward that the Irving, Texas-based company had promised to reconsider its dealings with the KRG.
The KRG has signed nearly 50 oil-and-gas deals with international oil companies, mostly second-tier or wildcat explorers. The KRG was hopeful that Exxon’s presence would ease the passage of other majors, such as Total SA, which is active in Iraq.
Some of the blocks in the Exxon-KRG deal are in a hotly contested oil-rich territory claimed by both the central government and the KRG, stretching from the Iranian border to the east and to the Syrian border in the northwest.
Baghdad has already blacklisted companies that maintain deals with the Kurds, excluding them from working elsewhere in Iraq. Among those is New York, N.Y.-based Hess Corp., which was barred last year from competing in the fourth energy auction.
However, Adnan Al Janabi, chairman of the Oil and Energy Committee in the Iraqi Council of Representatives, last week told Dow Jones Newswires that the Oil Ministry doesn’t have the legal authority to blacklist Exxon over its Kurdistan contracts.
An ExxonMobil media officer in the U.S. declined to comment.
Iraq–holder of the world’s third largest oil reserves, estimated at 143 billion barrels–auctioned and awarded in 2009 and 2010 some 11 oil fields to international oil firms.
Source: Dow Jones & Rigzone