BP Plc (NYSE: BP) and Exxon Mobil Corp. (NYSE: XOM) are caught on opposite sides of the front line of the oil war between the Iraqi central government and the Iraqi Kurds, with Baghdad talks with BP over a deal in disputed Kirkuk and warns Exxon about working with the Kurds.
On 28 January, the Iraqi Oil Minister Abdul Kareem al-Luaibi again threatened to cancel Exxon’s contract in the massive West Qurna-1 oil field in southern Iraq if it refuses to stop dealing separately with the Kurds in Northern Iraq.
“We can’t allow Exxon to step over the constitution. It can’t continue to work in both places at the same time; they have to choose to work either in Iraq or in Kurdistan. We are waiting for a final answer in the coming few days,” the minister said in a statement. (Related article: Kirkuk Poised for Conflict, BP Enters Fray)
Chevron Corp. (NYSE: CVX), Total SA (NYSE: TOT) and Exxon are the three majors that have ignored Baghdad’s warnings and struck unilateral oil deals with the Kurds. The Kurdish Regional Government (KRG) offers more attractive terms, but Baghdad says the deals are illegal.
At the same time, the Kurdish government says Baghdad’s potential deal with BP to develop an oil field in disputed Kirkuk is also illegal.
Both sides are lining up deals that will further intensify the already near-conflict situation in the disputed territories. Iraq has signed a new $125 million agreement with Kuwait Energy Co for exploration along the Iraq-Iran border. Turkey’s Genel Energy, the largest producer of oil in Northern Iraq, is pursuing a new pipeline from Kirkuk that would transport hydrocarbons directly to Turkey, bypassing the Iraqi central government. (Related article: Is Iraq Slipping into Civil War?)
Late on 28 January, reports emerged that Exxon might be holding out for a better deal with Baghdad over West Qurna-1. Iraqi sources told Reuters that Exxon was “moving along the right course the central government has set for foreign oil companies working in the country.” This went down on the sidelines of the World Economic Forum (WEF) in Davos, Switzerland.
Reuters seems to interpret this as possible move by Exxon to drop its Kurdish holdings in return for a better deal in southern Iraq. We haven’t heard from Exxon yet, though, and Baghdad has had plenty of chances to adopt a more favorable contractual model, like the Kurds, and has not done so. It would be a major coup for Baghdad it managed to convince Exxon to quit Northern Iraq.