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Iraq suggests Exxon deals with Kurds could stand

Associated Press Modified: April 12, 2012 at 2:16 pm •  Published: April 12, 2012
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BAGHDAD (AP) — Iraq may be open to letting Exxon Mobil Corp. keep some of its disputed oil deals in the self-ruled Kurdish region if they and similar contracts meet Baghdad's approval, the country's top energy official said Thursday.

Deputy Prime Minister for Energy Hussain al-Shahristani said Iraq has received assurances from Exxon that it will not begin working in the autonomous northern territory for now to give the federal government and the Kurds a chance "to resolve their differences."

Al-Shahristani's comments, made during an interview with The Associated Press, suggest Baghdad is softening its opposition to the deals signed by the world's largest publicly traded energy company.

"The Ministry of Oil has decided to give them some time on the condition that they don't start any work on the ground," he said.

Officials have previously said Irving, Texas-based Exxon agreed to freeze the Kurdish contract, but did not say what that meant in practice. They have not yet made good on threats to blacklist it from future deals.

Al-Shahristani said Exxon's agreement and dozens of similar Kurdish oil contracts might be recognized by Iraq's government if authorities in Baghdad are allowed to review and possibly amend them, with Cabinet approval.

"These differences have to be sorted out, and the sooner the better," he said. "The federal government is willing to engage in serious discussions with the (Kurdish regional government) and review any contract that has been signed."

Exxon's contract with the Kurds allows it to explore in six patches in northern Iraq, including land claimed by both the Kurds and Arabs in Ninevah province.

What is not up for negotiation, al-Shahristani stressed, are the three oil exploration blocks in disputed territory. Only the three zones wholly in Kurdish control might be eligible for Baghdad's blessing.

A senior official in the Kurdish Ministry of Energy and Natural Resources said Thursday the region's contracts with Exxon are still valid. He spoke on condition of anonymity because he is not authorized to talk to the media.

Exxon's agreement with the Kurds sparked fury in Baghdad when it was announced in November. It is being watched closely by other oil majors, including France's Total SA, which said in February it is considering investing in the Kurdish north.

Iraq insists any deals signed with international oil companies be approved by the federal government. It deems any contracts signed unilaterally with the Kurds illegal.

Dozens of mostly small and medium sized companies, including Norway's DNO International and Austria's OMV, have inked exploration deals with the Kurds. Marathon Oil Corp. and Murphy Oil Corp. are among the U.S. companies with operations in the region.

The business there is not without risks. Kurdish authorities earlier this month halted oil exports over a still-unresolved payment dispute with Baghdad.

Exxon CEO Rex Tillerson last month said the company is committed to its contracts with both the Kurds and Iraq's federal government. The company did not immediately respond to a request for comment Thursday.

Baghdad has awarded 15 oil and gas deals to international energy companies since 2008. The projects are the first major investments in the country's battered energy industry in more than three decades.

The goal is to boost daily production from what Iraq says is about 3 million barrels now to 12 million barrels by 2017. Doing so would allow Iraq to pump roughly as much as fellow OPEC member Saudi Arabia, one of the few producers able to open the taps further when supplies are tight.

Few experts believe Baghdad will reach that target.

Samuel Ciszuk, a consultant at KBC Energy Economics, expects Iraq will struggle to get even half that amount by 2017.

"If they can achieve that, they should congratulate themselves," he said.

Iraq holds the world's fourth largest oil reserves of 143.1 billion barrels, according to government's estimates. Oil revenues make up nearly 95 percent of the country's budget.

Al-Shahristani acknowledged that whether Iraq indeed produces 12 million barrels a day will depend on demand.

The country is in the final stages of studies examining whether the production plateaus envisioned under the existing contracts should be revised, he said. One option is to pump a lower level of oil in a given field over a longer period of time, rather than running at peak capacity for just a few years before production starts to taper off.

The changes could mean daily output above 8 million but less than 12 million barrels, he said.

Official figures show Iraq exported just over 2.3 million barrels a day in March, the highest level since 1989.

Helping boost output was a new Persian Gulf export terminal that began loading crude oil last month. It is the first of five such moorings, each intended to handle 900,000 barrels a day.

But the industry is still hobbled by creaking infrastructure weakened by years of fighting and an international embargo that lasted more than a decade. Security remains an issue for foreign oil workers, and the country still lacks a comprehensive petroleum industry law.

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.

Exxon's Kurdish contract dispute reignited long-simmering tensions between Iraq's federal government and the Kurds just weeks before the last U.S. troops left the country in December.

Relations between the two sides deteriorated further when Iraq's Sunni vice president, Tariq al-Hashemi, sought refuge in the Kurdish north shortly before Iraq's Shiite-dominated government called for his arrest on terrorism charges.

Baghdad has demanded the Kurds hand him over, but they have so far refused. Al-Hashemi says he is innocent and calls the charges politically motivated.

___

Associated Press writers Sinan Salaheddin in Baghdad and Yahya Barzanji in Sulaimaniyah contributed reporting.


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