Can Exxon Get Its Way in Iraq?

oil-on-waterIn 2011, Exxon Mobil (NYSE:XOM) ruffled some feathers when it signed an exploration deal with Kurdish officials. Kurdistan, which is an autonomous region, is sitting on a tremendous field of oil and would understandably like to sell it. But, unsurprisingly, the newly-established Iraqi central government also wants that oil money, and has laid claims to the resource.

As a result, tension is high. Iraqi’s central government has barred oil and gas companies operating within the country to sign independent deals with the Kurds. Exxon Mobil has a 60 percent interest in a massive Iraqi oil field at West Qurna-1, worth about $50 billion, and went ahead and signed a contract anyways. Exxon shares the project with other supermajors like Chevron (NYSE:CVX) and Royal Dutch Shell (NYSE:RDSA)(NYSE:RDSB).

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Exxon floated its stake in the West Qurna 1 project, and so far China National Petroleum Corp. is reportedly the favorite in negotiations. But there’s a possibility Exxon will try and find a way for it to honor both contracts. The company has asked for a meeting with Iraq’s prime minister, Nuri al-maliki, in order to discuss the possibility.

Exxon Mobil is likely choosing Kurdistan over Iraq because it can get a better deal there. The West Qurna-1 field is already producing oil, but is in need of major development. The Iraq government wanted to pay the company and its partners in the Qurna project just $1.90 per barrel for each additional barrel they pumped. This would barely cover the costs associated with development and production.

This number may be up for discussion at the talks. Kurdistan is more likely to adopt a profit sharing scheme that is more lucrative for Exxon compared to the flat-rate. According to Reuters, a statement from the government said only that Exxon Chief Executive Rex Tillerson had “expressed his company’s keenness to continue and expand its work in Iraq and that it will take important decisions in this regard.”

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