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 instead.
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 Kurdistan.
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
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 time."
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
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
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 million b/d.
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
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
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, he said.
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 Economist.
- This story was first published on 16 October and
updated throughout on 18 October.