Iraq to cut ties with foreign oil firms over Kurdish deals:
Shahristani
Baghdad (Platts)--13Aug2012/747 am EDT/1147 GMT
Iraqi deputy prime minister Hussein al-Shahristani said late Sunday
that Baghdad was determined to cut ties with ExxonMobil and any other
foreign oil company if they violate Iraqi law and proceed with upstream
work in the semi-autonomous Kurdistan region.
"Our stand regarding these companies has been constant since the start
of the bidding rounds and dealings with these companies. It has never
changed," Shahristani, who is in charge of energy affairs, told
reporters.
A spokesman for Shahristani said Monday that Total, which has farmed
into two Kurdish oil blocks in recent weeks, had been told by the Iraqi
government to cancel its contract with the KRG or, failing that, sell
its minority stake in the Halfaya oil field development consortium.
"Iraq has asked Total officially to cancel its contract with the Kurdish
region and respect Iraqi law or sell its stake in the Halfaya oil
field," Shahristani spokesman Faisal Abdullah told Platts on Monday.
Shahristani reiterated Sunday night that the authority to conclude any
oil and gas deals in Iraq lies with the federal government represented
by the oil ministry, which signs contracts and refers them to the
cabinet for approval, he added.
ExxonMobil led the march of the oil majors into Iraqi Kurdistan late
last year when it signed contracts with the Kurdistan Regional
Government for six oil blocks. It was followed in recent weeks by Total,
the US' Chevron and Russia's Gazprom Neft.
Baghdad considers illegal the production-sharing contracts awarded by
the KRG and Shahristani has been the most vocal critic of the Kurdish
policy of granting upstream contracts to foreign oil contractors without
the central government's blessing.
"Iraq will end dealings with any company of whatever nationality and
size in the oil industry if they violate Iraqi law. All the companies
have been informed about it," Shahristani said. "I assure you that the
Iraqi government will take measures against ExxonMobil or any other
company in the same way." NO ACTION YET AGAINST EXXONMOBIL
He said Baghdad had not yet taken action against ExxonMobil because the
US company had informed him that it was only conducting exploration work
in Iraqi Kurdistan and had assured him that it would tell Baghdad if and
when it were to proceed with any field development work.
Foreign oil companies which had already signed production-sharing deals
with the KRG before Iraq's first bidding round in 2009 were banned from
that and subsequent auctions, the latest of which was a disappointing
exploration round held in May. These companies have no assets in Iraq.
But that is not the case for ExxonMobil, Total and Gazprom Neft, which
have stakes in Iraq's West Qurna 1, Halfaya and Badra oil fields
respectively and are at risk of expulsion if Shahristani carries out his
threat.
The KRG's production-sharing contracts have proved more of a lure to
foreign oil contractors than the long-term service contracts devised
when Shahristani was oil minister. Baghdad's technical service contracts
offer the majors a fixed per barrel fee, which many oil companies have
complained is too low considering the huge investment required both for
oil field development and infrastructure costs. EXPLORATION CONTRACTS
BEING MODIFIED
Shahristani, while admitting that the returns for the oil companies were
low, defended the policy of not allowing foreign oil majors a share of
the nation's oil wealth but said the model contracts offered in the
exploration round were being modified to make them more attractive.
Iraq awarded only four of the 12 blocks that were offered in the May
30-31 exploration round, when none of the big oil companies took part.
However, the work being undertaken by foreign consortiums to develop or
further develop major Iraqi oil fields has helped to boost Iraqi oil
production to the highest levels since 1990. Shahristani said Iraqi
production had risen above 3.2 million b/d, putting the country ahead of
Iran as the second largest producer in OPEC after Saudi Arabia.
Iraq's oil output has been rising steadily in recent months, partly
because of development work on its major oil fields by foreign oil
companies and the recent removal of export bottlenecks in the south with
the addition of two new Persian Gulf loading berths.
The Iraqi oil ministry has set an ambitious target of raising capacity
above 13 million b/d by 2017 although several officials have said that
the figure is likely to be revised down.
Shahristani did not give recent export figures, but August export
volumes are set to rise above July exports after the Kurdistan Regional
Government said it had resumed oil exports at a rate of 100,000 b/d from
August 7. The KRG agreed to restart exports in the hope that the move
would help resolve outstanding disputes with Baghdad over payments to
foreign contractors in the Kurdish province and other pending issues,
including the stalled federal hydrocarbon law.
Shahristani said the KRG exported 116,000 b/d of crude oil on Sunday,
adding that this was still less than the 175,000 b/d that the Kurdish
authorities had agreed to ship through the federal export system as its
contribution to the 2012 budget. The KRG, he said, should increase its
production to compensate Baghdad for the loss of income. IRAQ OVERTAKES
IRAN
Iraq exported 2.516 million b/d in July, when there were no exports from
the KRG. It produced just over 3 million b/d, overtaking Iran as the
second largest producer in OPEC after Saudi Arabia.
Iranian output and exports have fallen sharply in recent months because
of international sanctions targeting Iran's energy and financial
sectors. The latest Platts estimate of OPEC's production estimated
Iran's output at 2.9 million b/d and Iraq's at 3.05 million b/d in July.
Iraq's oil production "is now higher than that of Iran, Kuwait's and the
Emirates," Shahristani said.
Kurdish oil minister Ashti Hawrami convinced companies operating the
KRG's main producing fields -- Tawke, Taq Taq and Khormala Dome -- to
start exports as a show of goodwill to Baghdad. But he warned that
exports would be halted at midnight on August 31 if the payments row was
not resolved.
Under an interim agreement reached between Baghdad and Erbil, the Iraqi
government agreed to pay the costs but not the profits of the foreign
oil operators in Iraqi Kurdistan. Exports of Kurdish crude resumed in
February this year but were halted again in April after the KRG accused
the central government of failing to honor its commitment.
Shahristani said the KRG last year received a payment of $500 million
from the finance ministry but noted that Erbil had not transferred any
funds from billions of dollars earned in signature bonuses from
companies that had signed 48 production-sharing contracts with the KRG
at that time.
"Where did that money go? And why did they not use that money to pay the
companies?" he asked.
The KRG has not yet supplied the finance ministry with any receipts for
work undertaken or a full list of the costs incurred by the foreign
operators to allow payments to be made, Shahristani said. --Staff,
newsdesk@platts.com
--Kate Dourian, kate_dourian@platts.com --Edited by Jonathan Dart,
jonathan_dart@platts.com
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