Exxon Mobil Corporation (NYSE:XOM) won’t be allowed to take part in Iraq’s fourth licensing auction, as it signed deals with the semi-autonomous region in Kurdistan, a spokesman for Iraq’s Deputy Prime Minster for Energy tells the Wall Street Journal.
The shares closed at $84.42, up $0.62, or 0.74%, on the day. Its market capitalization is $399.64 billion.
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By James Herron
After months of speculation, the Iraqi authorities have finally revealed the punishment Exxon Mobil will face for going against Baghdad’s wishes and setting up shop in Kurdistan.
In the short term at least, it doesn’t look like the kind of sanction that’s going to leave the U.S. oil giant begging for mercy. In fact, some analysts say Exxon Mobil may be wise to sit on the sidelines now, and return on more attractive terms in the future.
An Iraqi government spokesman told the Wall St Journal Monday that Exxon Mobil will be denied the right to search for oil in unexplored areas of Iraq that will be offered up later this year.
This is payback for Exxon Mobil’s exploration deal with the semi-autonomous government of Iraq’s Kurdish region. Baghdad has long insisted that the Kurdish government has no right to make such deals and shunned companies involved with them.
Reuters
On the face of it, being excluded from the exploration acreage offered this year is a significant opportunity lost. The U.S. Energy Information Administration estimates that Iraq’s unexplored areas could hold between 45 billion and 100 billion barrels of oil. Any oil found there should also be cheap and easy to recover compared to other areas Exxon Mobil is exploring, such as the deep water of the Gulf of Mexico or the Russian Arctic.
The opportunity in Iraq, “is on a scale that is hard to access anywhere else in the world,” said KBC Energy Economics analyst Samuel Ciszuk. “If this was just about geology it would be a no brainer.” (Something so simple or easy as to require no thought.) The contract being offered by Iraq, “would need quite a radical change to become attractive,” to foreign oil companies, said Mr. Ciszuk.
“You don’t know what you’re going to find,” said Mr. Ciszuk. “You have all these uncertainties, the most rigid contract framework…and delays building up because of slow state decision making.”
However, the political and financial terms are less appealing than the mouth-watering the geology.
The bidding process for exploration rights due to be held in May has already been delayed twice as the Iraqi government and the oil companies have struggled to reach contract terms that are mutually acceptable.
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.
This has worked for the redevelopment of existing oil fields in Iraq — albeit with very slim margins for the companies involved — but is unappealing for companies facing the gamble of oil exploration.
Despite the potentially huge resources to be found, most companies are far from enthusiastic, he said.
In Kurdistan, by way of contrast, Exxon Mobil probably has a smaller potential resource, but a production sharing contract on attractive terms, a more stable political and security environment, and less red tape to deal with.
Time will tell if this trade off was a good one.
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Iraq Oil Report: Exxon has 'days' to respond...
pathai
By Ben Lando of Iraq Oil Report
Published February 14, 2012
Apologies, do not have full article - subscription
http://www.iraqoilreport.com/politics/oil-policy/exxon-has-days-to-respond-7378/
Iraq's central government said ExxonMobil will soon need to freeze or pull out of the contracts it signed with the semi-autonomous Kurdistan region or else lose both its venture in the super-giant West Qurna 1 and the rights to bid in an upcoming licensing round.
"ExxonMobil is quite aware of the position of the government of Iraq," Deputy Prime Minister for Energy Hussain al-Shahristani said in an interview with Iraq Oil Report. "They have been told they have to make a decision and inform us...
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How ExxonMobil Turned King-Maker in Iraq
By Andrés Cala
Posted on Feb. 15, 2012
How ExxonMobil Turned King-Maker in Iraq
ExxonMobil has surfaced as a critical player in Iraq’s sectarian strife, a risky position that nonetheless appears set to pay off handsomely, that is, as long as a new war doesn’t start, in which case everyone loses.
The Texas-based giant oil company was among the first in a wave of global oil majors seeking a foothold in Iraq, which will be the world’s single biggest contributor to oil production additions this decade on its way to more than tripling current production to as much as 9 million bpd. This growth, supported by highly attractive petroleum geology can be accomplished only if the political situation allows it.
Companies grudgingly accepted the unattractive service contracts as they looked forward to stability and a future exploration bonanza. ExxonMobil became the operator in a joint venture with Shell of a contract to develop the super major West Qurna-1 field, one that binds ExxonMobil to produce 2.825 million barrels per day by 2017, up from less than 400,000 bpd currently.
But Baghdad also demanded loyalty. A contract with the central government meant not investing in the Kurdish region, an acceptable compromise at first. Companies picked one or the other, assuming that one day the sectarian threat would subside and all contracts would be legalized by Baghdad, exports routes would flow, and so forth.
But the southern bonanza is not materializing, while the KRG has grown into stable investment magnet in all sectors. Kurdish production sharing contracts are looking increasingly attractive, especially as Iraq approaches a tipping point in sectarian strife that is raising expectations of a comprehensive national reconciliation effort or the likely semblance of civil war.
Last October ExxonMobil became the first to hedge investments in Iraq by trying to have it both ways when it signed a juicy deal with the KRG to explore six blocks in the de-facto autonomous region, half of them in territory claimed by more than one side.
Oil majors are not politically motivated, but just looking to maximize oil output and profit, as they are mandated to do. And their decisions to challenge Baghdad and to cozy up to Kurds expose a purely corporate reality that Baghdad is simply not offering enough in return to demand loyalty.
“I don’t think there is any politics from Exxon. They came hoping things would change,” said Manouchehr Takin, senior upstream analyst in the London-based Center for Global Energy Studies. “I think it’s more attraction of the Kurdish terms.”
ExxonMobil won’t be the last. Total from France, another of the big players in the south, is also reportedly negotiating with the KRG, and surely more will follow. Baghdad has repeatedly threatened companies tempted with the Kurdish allure that it will strip them of any contracts and bar them from participating in future exploration rounds.
And the KRG also intentionally included in its ExxonMobil contract three blocks in Kirkuk and Mosul that are contested by the central government with the obvious agenda of legitimizing its claims. ExxonMobil has more clout after all than dozens of small countries.
Of course Baghdad can’t budge to ExxonMobil, at least for now, if it is to prevent a stampede that would dangerously undermine its ability to assert control over Kurds. On the other hand, it doesn’t want to scare investment away either and has hinted at a compromise.
“The minimum requirement, if Exxon doesn't want West Qurna to be terminated, would be to inform the Ministry of Oil in writing that it will freeze its contracts in Kurdistan until there is an agreement between the KRG and Baghdad or the Ministry of Oil approves the contracts,” Reuters quoted Abdul Mahdy al-Ameedi, head of Iraq's contracts and licensing division, as saying last week.
That said, Baghdad controls export routes, even if Kurds likely sit on top of one of the best oil prizes in the world. And the central government also needs Exxon, not only to deny Kurds the legitimacy, but also for its expertise and investment.
Complicating things further, Iraq still lacks an oil law, and the 45 contracts the KRG has signed will still be “illegal,” as the government calls them. Accepting ExxonMobil’s deal –at least before a national reconciliation that addresses pending economic and territorial grievances- would seriously undermine the government’s hold on power.
The company is thus in the comfortable position where both Kurds and the central government depend on it for both economic and political reasons, allowing it to extricate legal guarantees from both. That is, ExxonMobil is set to have it both ways, as long as the sectarian strife doesn’t turn lethal again, in which case everyone loses.
ExxonMobil perhaps miscalculated just how much its hedge would become intertwined in Iraq’s sectarian strife, especially as the ghost of the last war that killed hundreds of thousands rekindles.
US troops have withdrawn (ExxonMobil reportedly signed the deal just days before the White House announced it was pulling out); the Shiite majority led by Prime Minister Nuri Al Maliki is increasingly in a collision course with their Sunni rival, and Kurds and Sunnis alike have raised the prospect of a three-way split.
And all this happens in the context of a much broader and complex covert war between Iran and its allies on one side and the US and Arabs on the other. No side wants Iraq to split up, but there is significant pressure from Turkey, the US, and Saudi Arabia to undermine Iran’s clout in the Shiite government. And the ExxonMobil contract is playing its part.
“The US is in uncomfortable situation,” said Reva Bhalla, head Middle East analysts with Stratfor, the global intelligence consultancy firm. “The US is overstretched and Iran will retain the upper hand in Iraq, but that doesn’t mean its opponents don’t have other levers in the meantime.”
That’s where the ExxonMobil deal comes in, Reva said. “Sunnis don’t have good options. They don’t have the economic lever that Kurds have and militancy only gets them so far. But Kurds have the power of foreign investment. When it comes to capital and technology, Iranians can’t compete.”
That is not to say that ExxonMobil is taking policy decisions advice from Washington. Far from it. But the Kurdish ability to attract foreign investment is certainly putting geopolitical pressure on Baghdad to resolve its Kurdish quagmire, and that should bode well for all.
Both Shiites and Sunnis agree though that legalizing the Exxon deal in this juncture would be the equivalent to surrendering to Kurdish long-held claims of the oil rich regions, heightening fears of its independence aspirations. But they differ in just about everything else other than oil. Meanwhile Kurds are happy to prey on a Shiite leadership preoccupied and weakened by its Sunni rival to extract concessions, especially on the distribution of oil wealth and territorial claims.
And while the likely outcome, considering what’s at stake, is some kind of resolution, ExxonMobil has brought the sectarian strife closer to a tipping point. Iraq will have to finally deal the longstanding root causes of its endemic instability one way or another.
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Kurds in Baghdad rebuff Exxon critics
Iraq's Deputy Prime Minister Rosh Nouri Shaways (R) walks with German Economy Minister Philipp Roesler (C) to attend a meeting in Baghdad November 2, 2011. (MOHAMMED AMEEN/Reuters)
Iraq's Deputy Prime Minister Rosh Nouri Shaways (R) walks with German Economy Minister Philipp Roesler (C) to attend a meeting in Baghdad November 2, 2011. (MOHAMMED AMEEN/Reuters)
By Ben Lando of Iraq Oil Report
Published February 16, 2012
A top member of the government has added a pro-Kurdish voice to the polarized public debate over regional oil rights, criticizing other top members of the Maliki administration for their hard-line stance against Kurdistan's controversial deals with ExxonMobil.
Iraqi Deputy Prime Minister Rosh Shaways, the most senior Kurdish official in Prime Minister Nouri al-Maliki's cabinet, called for an open-ended process to resolve the controversy over the Kurdistan Regional Government's (KRG) oil contr...
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Lucrative deal: Iraq offers long term deferred oil payment facility
By Zafar Bhutta
Published: February 16, 2012
PPL to launch exploratory venture in Iraq; government works on new refinery policy. DESIGN: FAIZAN DAWOOD
ISLAMABAD:
With the power sector facing problems in the regular supply of furnace oil because of the circular debt Iraq has now offered Pakistan to provide oil on long term deferred payment facility.
While addressing a press conference here on Wednesday, Special Assistant to Prime Minister Dr Asim Hussain also said that Pakistan would move ahead on Iran-Pakistan (IP) gas pipeline project despite international resistance.
He said that Iraq had offered to provide oil on deferred payment on Wednesday and a delegation would go to Iraq to negotiate a deal.
“Oil refineries in Pakistan are designed to refine low sulphur oil and therefore an upgrade or new refineries will be needed to process Iraqi oil,” he said adding that the government is working on a new refinery policy.
He also said that Pakistan Petroleum Limited (PPL) was going to launch its exploratory operations in Iraq with an investment of $100 million.
At present, Pakistan is using 120 Centistokes (CST) sulphur oil to 160 CST oil that costs $20 per ton more than 380 CST sulphur oil.
“Now we want to convert power plants to use 380 Centistokes (CST) sulphur oil and Hub Power Company (Hubco) has expressed willingness in this regard,” Hussain said that it will help save $20m to $30m a year.
“The government has also now agreed to purchase 200 mmcfd LNG from LNG developers to inject into the systems of SNGPL and SSGCL,” he said and confirmed that it would cause a hike in local gas prices due to taking weighted average.
He said that it was now the question of affordability and availability which the cabinet would have to decide that either government should go for costly LNG or wait for exploration of indigenous reserves to get gas at $6 per mmbtu. In the LNG Policy 2011, government had given no guarantee to buy gas from LNG developers and they are supposed to arrange their own clients in power sector and industry.
“We need to give gas to fertilizer sector to boost economy and will have to end subsidy to sustain the economy,” he said. “The criteria to provide gas to the new schemes should be changed, otherwise Sui companies will financially collapse,” he also said.
He said that Petroleum Ministry was also working to review the gas pricing formula that assures 17 per cent guaranteed return on assets to Sui companies which consumers were paying. He said comments had been sought from stakeholders.
He said that there were two regulators including Oil and Gas Regulatory Authority (Ogra) and Explosive Department under two different ministries including cabinet division and Ministry of Industries to look into matters of safety of CNG cylinders.
“We are facing problems in ensuring safety due to this,” he said adding that issue will be resolved soon. He also said that consumers should get smart meters of gas if they are facing problems of bogus billing.
With regards to the delay in the implementation of the petroleum policy he said that with the consensus between provinces work on concessions was already underway.
The adviser also said that the government has decided to give contracts for the extraction of LPG from Kunnar Pasakhi Deep (KPD) field to avoid a loss of 150 million dollars. He said that the Oil and Gas Development Company Limited (OGDC) will be able to set up its own LPG plant at KPD by October this year.
Published in The Express Tribune, February 16th, 2012.
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