London, 20 July (Argus) — Iraq's federal government is drawing the US administration and Turkey into its dispute with the Kurdistan Regional Government (KRG) over the latter's upstream deals with foreign companies.

Iraqi prime minister Nouri al-Maliki's office issued a statement on 19 July — the same day that Chevron announced its entry into the KRG-run upstream sector — warning ExxonMobil against implementing an exploration deal it signed with the KRG in October. Baghdad says al-Maliki received a letter from US president Barack Obama in response to one that al-Maliki sent him regarding ExxonMobil's production-sharing contracts in Kurdistan province and neighbouring disputed territories in northern Iraq.

Baghdad says Obama's response affirms the US' “respect for Iraq's constitution and laws”. On that basis, al-Maliki's statement calls on ExxonMobil “to stick to its pledges and the directives of the Iraqi government and of the US administration so that it can assume its fitting role in the Iraqi oil industry. Otherwise, the government will take all measures necessary to implement the law and prevent the company from implementing those contracts.”

The statement does not specify what measures the government might take against ExxonMobil, but the warning could herald a move to expel the firm from its operatorship of the 400,000 b/d West Qurna 1 field, where ExxonMobil and partner Shell are contracted to boost output to 2.83mn b/d by 2017. The only action Baghdad has taken against ExxonMobil so far has been to ban it from participating in Iraq's fourth bidding round at the end of May.

The round drew a disappointing response, with only three of 12 exploration blocks on offer awarded during the bidding process and one awarded subsequently. It attracted scant bidding from the majors and western companies, partly because companies that have no Iraqi contracts perceive the terms offered by the KRG as much more attractive than Baghdad's.

Chevron has bought Indian firm Reliance's 80pc share and operatorship of the exploration and production-sharing agreement at the Sarta and Rovi blocks in the Kurdish region. Chevron is partnered by Austria's OMV, with 20pc.

The deal, approved by the KRG, was concluded without the approval of the central government. Baghdad considers all upstream deals awarded by the KRG to foreign firms without its approval as illegal, and bans foreign companies from working in the rest of Iraq. But Chevron has no upstream interests in Iraq, and the only way the government can penalise it is by banning it from bidding for future upstream Iraqi contracts outside the KRG region. It could also ban Chevron from buying Iraqi crude from state-owned oil marketer Somo, but this is unlikely.

Iraq's dispute with the KRG is also contributing to a deterioration of relations between Ankara and Baghdad, with Ankara rejecting an Iraqi call to halt a swap of condensate from the KRG for refined products from Turkey. The KRG has halted crude exports from fields under its control through the Iraq-Turkey export pipeline, through which Iraqi exports handled by Somo flow, because of a dispute with Baghdad over the payment of investment costs to firms producing crude in the KRG region.

Shaikan boost
But KRG oil minister Ashti Hawrami says he is confident that rising capacity in the KRG will create enough pressure to open up an export route from the region. These hopes have been boosted by an upward revision of estimated reserves and expected output at the Shaikan field, operated by UK-listed Gulf Keystone. The firm says appraisal work indicates up to 15bn bl of oil in place, and it is targeting output of 400,000 b/d at the field, chief operating officer John Gerstenlauer says.

Gulf Keystone, which operates the field with 75pc, expects output from an extended well test at Shaikan to reach 40,000 b/d in the first half of 2013. Hungary's Mol owns 20pc of the project and US independent Texas Keystone has 5pc.

For more intelligent and thought-provoking opinion and analysis, request a free trial of Petroleum Argus.

Send comments to feedback@argusmedia.com
sk/dt 2.4

Copyright © 2012 Argus Media Ltd - www.ArgusMedia.com - All rights reserved.