Derek Brower, LONDON: ExxonMobil is poised
to walk away from its technical services agreement for southern
Iraq's West Qurna-1 oilfield. Well-placed sources familiar with
the US supermajor's Iraq operations told Petroleum
Economist that the US supermajor was preparing to
focus its efforts on upstream projects in Kurdistan
A source said an exit could be announced as early as this
month, although it is understood that the company's departure
from Iraq's south could take six months to a year.
"The decision has been taken. It has been communicated to
the Iraqi oil ministry," said the source. It is understood that
ExxonMobil and Shell, its partner in the West Qurna-1 technical
service agreement, had a meeting at the Ministry of Oil in
A second Baghdad-based source, close to the Iraqi
government, said ExxonMobil, under pressure from the central
government, had requested some time to find a buyer for its
stake. The company hoped to make a profit on its share in West
Qurna-1, he said. The US firm has opened negotiations with
Asian and Russian firms.
The move will end a dispute that has been rumbling since
news surfaced last year that the supermajor, defying the
central government's rules, had agreed to develop six blocks in
The Iraqi central government considers Kurdistan's
production-sharing contracts, judged by investors to be more
generous than the technical service contracts on offer in the
south, to be illegitimate, and has banned companies operating
in the region from participating in future upstream licensing
rounds in Iraq. It previously threatened to strip ExxonMobil of
its West Qurna-1 contract in response the supermajor's decision
to invest in Kurdistan.
The Baghdad source said ExxonMobil may be walking from its
West Qurna-1 contract before it is pushed.
Pressure has been building on the central government to
punish ExxonMobil for its investment in Kurdistan, he said. The
government knows it could not win a court case if it stripped
the US firm of its contract, he said, but could make operations
"The government can give them a nightmare," he said.
ExxonMobil's response was "OK we will leave but give us
ExxonMobil refused to comment when contacted by
Petroleum Economist. The Iraqi oil ministry also
refused any official comment.
But ExxonMobil's withdrawal, if confirmed, will throw
renewed doubt on Iraq's ability to maintain upstream
It also suggests life is growing more difficult for Western
international oil companies in the south. Earlier this week,
the UK government closed down its Basra consulate. A UK
government source told Petroleum Economist that the
move was a cost-cutting exercise, saying maintaining three
diplomats at a price of £6.5 million ($10.49 million) a
year was too great. But sources in Baghdad said the move showed
a retreat from the south, where BP and Shell, among other
international oil companies (IOCs), have taken large stakes in
Hussein Al-Shahristani, the country's deputy prime minister
with oversight of the energy sector, said earlier this week
that output had reached 3.4 million barrels a day (b/d),
setting another three-decade high.
The International Energy Agency (IEA) has pinpointed Iraq's
four mega-projects - West Qurna is one of them - as critical to
global production growth. Iraq will account for 45% of the rise
in world output in the coming decades, the agency said.
The West Qurna oilfield, which with reserves of 43 billion
barrels is the world's second largest field, will be developed
in two phases. The first phase, West Qurna-1, is operated by an
ExxonMobil-Shell joint venture that is contracted to deliver
output of 2.25 million b/d. West Qurna-2 is under development
by Lukoil, with a 75% stake, and the Iraqi government. It will
eventually deliver 1.8 million b/d.
In a briefing to diplomats and selected guests at the UK's
Foreign Office on 15 October, Fatih Birol, the IEA's chief
economist, reiterated that such production growth depended on
"consensus" emerging between the Iraq central government and
the Kurdistan Regional Government (KRG).
A recent agreement between the two, allowing for the central
government to pay companies operating in Kurdistan for oil
exports, were "encouraging signs" that agreement was possible,
However, ExxonMobil's withdrawal from southern Iraq may
reignite the situation- raising questions about the central
government's willingness to compromise with the KRG and its
ability to retain the blue-chip investors it needs to increase
output significantly. The IEA predicts production will rise to
more than 8 million b/d by 2035. By 2015, it will rise to 4.2
Earlier this week, a report in Nefte Compass, a
Russia-focused oil-industry newsletter, said that Iraq was
considering replacing ExxonMobil at the West Qurna-1 oilfield
with Russian firms. Lukoil is already operating the West
Qurna-2 project. It was unavailable for comment on 15 October,
although a spokesman previously said the company had not been
asked to take ExxonMobil's stake in West Qurna-1.
Rosneft is also considered a potential buyer of ExxonMobil's
stake, according to sources. A deal in the works between BP and
Rosneft could see the Russian firm buy all or part of TNK-BP,
making it the world's largest oil company.
Rumours of greater Russian oil involvement in Iraq's south,
home to the country's largest oilfields, followed a trip to
Moscow earlier this month by Iraq's prime minister, Nuri
Al-Maliki. His trip sealed a $4.2 billion arms deal that will
see Russia supply the country with attack helicopters and
surface-to-air missile systems. Another agreement over the
supply of MiG-29 is also in the works. GazpromNeft, another
Russian company with a presence in Iraq, denied reports last
week that it had frozen its assets in Kurdistan.
ExxonMobil's departure from Iraq's south, if confirmed, may
also reinforce perceptions that Kurdistan is a more prospective
play for IOCs, said the Baghdad source. Its six blocks in the
autonomous region would likely be just the base for further
expansion through takeovers of smaller operators in Kurdistan,
The move will also have political ramifications, amid
persistent divisions between independence-minded Kurds and the
Iraqi central government.
A diplomatic source said ExxonMobil had sought to coordinate
its departure from Iraq's south with the US State Department.
Last year, the company's move into Kurdistan happened without
such political due diligence, the source said. The US' stance
remains that it backs a united, federal Iraq. The State
Department did not respond to questions from Petroleum
- This story was first published on 16 October and
updated throughout on 18 October.