ExxonMobil's Iraqi Kurdistan contract shifts landscape

ERBIL // Iraqi Kurdistan's young oil industry is set for a shake-up as the first move by an oil major sends ripples across business dealings and political negotiations.

ExxonMobil, based in Houston, has agreed to explore six blocks in the semiautonomous region in northern Iraq, home to a spectrum of small to mid-size operators from more than 17 countries, according to the regional government based in Erbil.

That landscape is to shift as the move by ExxonMobil, which also pumps oil in southern Iraq, puts pressure on Baghdad to come to a political agreement with Erbil and spurs majors to shoulder their way into the north and Kurdish producers to band together.

"This will make a dynamic change to the region and in the days ahead there will be a lot of consolidations and mergers," said Ashti Hawrami, the oil minister of Kurdistan. "It is vindicating our policies, and the ball is rolling."

Recently the heads of DNO, the first foreign company to strike oil in Kurdistan, and Vallares, the investment vehicle that has recently agreed to merge with a Kurdish producer, have said that mergers with other regional producers would be attractive.

Until now Kurdistan's fields - estimated by the regional government to hold more than 45 billion barrels in reserves - have remained off limits to the majors who are keen to preserve their service contracts in southern Iraq. Baghdad threatens to blacklist companies that sign contracts with Kurdistan that it deems unconstitutional, and as recently as September disqualified the American producer Hess from entering into its first exploratory block auction.

ExxonMobil signed the contract to explore six blocks on October 18, including a "prize block" near the Kurdish president's house that had been reserved for a yet-to-be-created Kurdish national oil company, Dr. Hawrami said. ExxonMobil has yet to confirm the deal.

The Kurdish contract puts at risk ExxonMobil's right to pump oil from the 8.7 billion-barrel West Qurna field and a lucrative contract for water injection throughout Iraq.

But it is the size of ExxonMobil's multibillion dollar contracts that ensures that Baghdad will not be able to call its bluff, said Berge Gerdt Larsen, the executive chairman of Petrolia and former chairman of DNO.

"There you need the big money, the billions and billions of dollars that Exxon is committing," said Mr. Larsen. "So question would be, do they dare to challenge Exxon in Baghdad? I wouldn't do it."

"Nobody now can block any oil company for political reasons ... If a big American company moves in, then anybody else can move in."

Barham Salih, the prime minister of Kurdistan Regional Government, said yesterday that he had reached an agreement with the Iraqi prime minister to submit a draft of a long-awaited national oil and gas law to the Iraqi parliament by the end of the year.

That draft will enshrine the legitimacy of Kurdish oil contracts that have been contested by authorities in Baghdad, said Mr Hawrami.

"We are confident that the solution coming out of that law will respect our contracts in Kurdistan," he said.

Others seemed confident, too - including a delegation from PetroChina, the Chinese national oil company that holds stakes in Iraq's massive Rumaila oilfield, among other sites in the south.

Cao Jun, a manager at PetroChina International Iraq, allowed that his company is not technically allowed to strike deals with Kurdistan under Baghdad's blacklisting policy, but that the situation may be changing.

"This is just an opportunity to have a look, that's all," he said.

ayee@thenational.ae

twitter: Follow and share our breaking business news. Follow us