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With or without Exxon, Iraq Kurds strive for energy autonomy

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Long read but has interesting info-Windreader1

Wed, Jan 30 2013

ARBIL, Iraq (Reuters) - Behind the closed doors of their offices in the United States, top executives and lawyers for Exxon Mobil are poring over two sets of contracts, weighing a decision that could shift the balance of power in Iraq.

Iraqi Prime Minister Nuri al-Maliki last week hastily convened a meeting with Exxon's chief executive Rex Tillerson in a bid to woo back the U.S. major, which had seemed intent on pulling out of the $50 billion West Qurna 1 oilfield in the south, in an area under Baghdad's control.

Since signing for six blocs with the Kurdistan regional government in 2011, Exxon has situated itself on one of Iraq's deepest faultlines, bringing to a head friction between the northern enclave and Baghdad, which says only it has the authority to grant oil contacts and control crude exports.

Industry sources say Maliki has offered Tillerson substantial incentives to stay in Iraq's southern oilfields as long as the company forfeits its assets in the autonomous Kurdish region.

A final decision is due within the next few days, Iraqi Oil Minister Abdul Kareem Luaibi said on Sunday. It remains to be seen which way Exxon's compass will swing. The company has declined to comment on the impending decision.

"The loss of prestige would be huge," said a former U.S. diplomat, contemplating the fallout for Kurdistan if Exxon were to quit the region in favor of Baghdad. "Exxon's presence here levels the political playing field."

As the first major oil company to risk Baghdad's ire by venturing north, Exxon afforded the Kurds a victory in their turf war with the central government over how to exploit Iraq's hydrocarbon riches.

The U.S. major's vote of confidence opened the door for others such as Total, Russia's Gazprom Neft and Chevron Corp, which recently added a third bloc to its Kurdish portfolio and is eyeing further acquisitions.

Three of Exxon's blocs, however, are located in the "disputed areas", an oil-rich band of territory over which both Baghdad and the Kurds claim jurisdiction and where the Iraqi army and Kurdish troops are facing off against each other.


Industry sources say Tillerson raised concerns about security at a meeting in Switzerland with the Iraqi Kurdish region's president, Masoud Barzani, although Kurdistan said later that Exxon had restated its commitment to working in the region.

But Baghdad also expects Exxon to take its side.

"We're positive the company is not willing to quit West Qurna," said an Iraqi Oil Ministry official, noting that output from that field alone exceeds total current Kurdish production capacity.

"We think Exxon will halt operations in Kurdistan and wait until a solution is reached to all the unresolved issues," he added, asking to remain anonymous because he was not authorized to speak to the media.

New legislation to govern the world's fourth largest oil reserves has been caught up for years in a struggle over how to share power between Iraq's Sunni, Shi'ite and Kurdish factions, which has intensified since U.S. troops withdrew a year ago.

The Kurds say the right to dictate their own oil policy is enshrined in the country's federal constitution, but Baghdad rejects contracts signed by the region as illegal and has blacklisted some firms operating there.

International oil companies have been prepared to take that risk in return for Kurdistan's better contract terms, security and an easier working environment, as opposed to the bureaucracy and infrastructure bottlenecks that hamper oil projects in the rest of Iraq.

Baghdad would have to promise Exxon favorable terms to entice it away from the north, but analysts and industry sources doubt Maliki's capacity to deliver those, and say it would be a mistake for him to do so.

"If they go for Baghdad, I'm sure they (Exxon) will want sweeteners," said a senior executive from a rival company. "But if they get better terms, others will want the same."

Some industry sources even suggested that may have been part of Exxon's calculations all along: that when defying Baghdad the company figured it might eventually be able to use its Kurdish contracts as leverage to extract concessions in the south.


Despite the loss of face if Exxon were to back away from Kurdistan, experts say such a move would ultimately do little to slow the region's drive towards greater energy autonomy from Baghdad.

"Exxon was a game-changer then, but things have moved on," said one industry source.

Now there are other majors waiting to snap up acreage in what has been described as one of the final frontiers for onshore oil exploration, and they are unlikely to be deterred.

The real challenge lies in finding new ways to sell Kurdish oil, until now shipped to world markets through a Baghdad-controlled pipeline running from Kirkuk to the Turkish port of Ceyhan.

But Kurdish exports via that channel dried up in December from a peak of around 200,000 bpd as result of a row over payments with Baghdad.

Fed up with waiting, the Kurds have already started bypassing the federal pipeline network by trucking small quantities of crude over the Turkish border in exchange for refined products. The trade is small, but symbolic.

"Oil and gas wise, it's a point of no return," said an industry source. "From this point on, the Kurds will not agree to a centralized oil and gas policy. Other regions will do the same."

Kurdistan is looking to Turkey for answers. A broad energy partnership between them has been in the works since last year.

"This will be a big bang deal. That's the only way to do it, involving everything at the same time," said a diplomatic source familiar with the negotiations.

Details are still unclear, but industry sources said it would range from exploration to export and seek to open up a new "energy corridor" to Turkey that would reduce Ankara's dependence on Russia and Iran for oil and gas.

The deal would involve a new Turkish entity taking a stake in several Kurdish blocs and an alternative pipeline, which the United States is actively discouraging for fear it will further destabilize Iraq and threaten its federal integrity.


It would also have to include a mechanism to pay the Kurds directly for their exports instead of the current arrangement whereby Baghdad receives the proceeds and then passes on 17 percent of the country's revenues as a whole.

Kurdish officials have long complained what they end up getting is in fact closer to 10 percent.

"When the money starts flowing straight to Arbil, that will be the game-changer," said a diplomatic source.

Kurdish officials say they would keep the share to which they are entitled and send the rest on to Baghdad, but an independent revenue stream would theoretically give the region the means to stand on its own economically.

"Assuming they could export 1 million barrels per day, they'd make more revenues from that than their current share of the national budget, depending on how much oil the south is producing," said Robin Mills of UAE-based energy consultancy Manaarco.

Opponents of the tie-up worry it would make Kurdistan too dependent on Turkey, which has a fraught relation with its own Kurdish community and will be keen to have the upper hand in any dealings with their ethnic kin in Iraq.

But champions of the deal argue that landlocked Kurdistan has few options besides isolated Iran and war-torn Syria -- its other neighbors -- neither of which has the strategic advantages of Turkey.

"Economically, we're already at their mercy," said a senior Kurdish regional government official. "Once we start mass producing, the equation changes and the relationship with Turkey becomes interdependent."

Majority Sunni Turkey's links with Iraqi Kurdistan have already come at a price, heightening tensions between Ankara and the Shi'ite-led government in Baghdad.

Baghdad has accused Ankara of complicity in "smuggling" Iraqi oil, and late last year prevented Turkey's energy minister from attending an oil conference sponsored by Exxon in Kurdistan by denying his plane permission to land.

"Collaboration between the KRG (Kurdistan Regional Government) and Turkey to transfer oil and gas to the world markets will strengthen our ties," Turkish Deputy Energy Minister Selahattin Cimen said at that conference.

But given the regional turmoil and political ramifications of building a pipeline to Turkey, it may be less imminent than the rumors suggest.

Turkish Prime Minister Tayyip Erdogan has already made an enemy along his longest border with Syria, having turned his back on one-time friend, President Bashar al-Assad and embraced the rebels fighting him.

"Of course the Turks want access to Kurdish energy, but is it worth torpedo-ing relations with Baghdad when you have a crisis in Syria to deal with?," Mills said. "I think they may wait.


Exxon, Kurdistan visit disputed Iraqi oil block
Fri Feb 1, 2013 2:45am EST

BAGHDAD, Feb 1 (Reuters) - Exxon Mobil and Iraqi Kurdistan officials visited an oil exploration block caught in a dispute between Baghdad's central government and the autonomous Kurdish region, and discussed building a camp there, a local official and sources say.

Talks at the Qara Hansher block between an Exxon executive and a top Kurdistan oil official could provoke Baghdad at a sensitive time for the Arab-led central government and the self-ruled Kurdish enclave in their feud over oil and land rights.

Since it signed for six oil blocks with Kurdistan last year, Exxon has been at the centre of the growing disagreement between Baghdad and Kurdistan that threatens to fracture the OPEC member's uneasy federal union a year after U.S. troops left.
The visit came as Exxon weighs whether to stay or pull out of its huge West Qurna oilfield in the Iraqi south or keep its Kurdistan fields. Iraqi and Kurdish officials have both suggested Exxon will side with them.

The Qara Hansher field, where the meeting took place on Wednesday just north of Kirkuk, sits in the swath of disputed territories, where both regions claim jurisdiction and where Iraqi Arab and Kurdish troops have reinforced positions in a tense standoff since last year.

"In the meeting we discussed the work of Exxon Mobil in Qara Hansher block and we discussed how to facilitate the company's work," Avesta Sheikh Mohammed, the local Kurdish major of the area. "The Kurdistan Regional Government has all the right to sign oil deals to develop energy resources."

An Iraqi oil official and a Kurdistan oil official confirmed the meeting had taken place to talk over building a camp in the block in the low hills.
No work or drilling has started at the Qara Hansher block - whose name means "black fig" in Kurdish - and the talks were for an initial site, the sources said.

Qara Hasher shows the complications of working in the disputed territories. Before the 2003 invasion that toppled Saddam Hussein, Qara Hansher was part of Kirkuk. Baghdad still considers it part of Kirkuk, but the Kurds claimed it as part of their region and the mayor was apppointed by the Kurdistan Regional Government.

Baghdad says oil deals signed with Kurdistan are illegal and warned foreign companies they risk losing their agreements in Iraq's southern oilfields if they develop Kurdistan fields. But fields in the disputed territories are more complicated.

Industry sources have said Exxon is considering concessions from Baghdad to keep to stay at the $50 billion West Qurna.

One Iraqi oil official said the U.S. major may be trying to smooth relations with Kurdistan with the block visit after the company's top executive meet last month with Iraq's Prime Minister Nuri al-Maliki.

"If Exxon visited the block that does not mean it will actually start upstream operations anytime soon. I think they are comforting the Kurds, saying they won't abandon them," a senior Iraqi oil official said. "Let's not jump to conclusions, let's wait and see."

Autonomous since 1991 with its own regional government and armed forces, Kurdistan says that the federal constitution enshrines its right to develop its oilfields.

The region is steadily developing more energy autonomy, but still relies on the central government for a share of the national budget from oil revenues.

Since Exxon entered Kurdistan, tensions between Baghdad and Kurdistan have increased, but the U.S. major's move also opened the door for other large foreign companies such as Chevron , France's Total and Russia's Gazprom Neft to sign up.

Chevron recently added a third block to its assets in Kurdistan.

Iraq's oil minister on Sunday said during the most recent meeting with Exxon, the government had made clear once again that the U.S. company must decide between the two regions.
"Exxon Mobil cannot work in the two fields at the same time," Oil Minister Abdul Kareem Luaibi said.

International oil companies have been prepared to take that risk in return for Kurdistan's better contract terms, security and an easier working environment, as opposed to the bureaucracy and infrastructure hurdles hampering southern oil projects.

The oil dispute has been accompanied by an increase in military tensions between the two regions.

Last year Iraqi national army and Kurdish Peshmerga forces both sent troops to reinforce their rival positions around towns dotted along the disputed territories, including the sensitive ethnically mixed town of Kirkuk.


I really hope the Kurds get what's due them...Maliki and Baghdad are so frikin petty and childish..unreal what a mess Maliki has made over there...


AGREE Gente...Kurds need to tell baghdad to stick it! I wish the Kurds would just "break off" from Iraq and become their own country...now that would piss a bunch off in baghdad!

If Maliki has "promised" stuff to Exxon so that they would leave the kurd area...Exxon would be STUPID to believe anything Maliki promised!!


Yep, he's broken every single promise he's ever made....I'm just amazed he's still in power...the other blocks all agree he has to go, so what are they waiting for?

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