Iraq asks Obama to halt Exxon's Kurdish deal

BAGHDAD/LONDON Tue Jun 19, 2012 3:19pm EDT

The Exxon corporate logo is pictured at a gas station in Arlington, Virginia January 31, 2012. REUTERS/Jason Reed

The Exxon corporate logo is pictured at a gas station in Arlington, Virginia January 31, 2012.

Credit: Reuters/Jason Reed

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BAGHDAD/LONDON (Reuters) - Iraq has asked U.S. President Barack Obama to stop Exxon Mobil (XOM.N) exploring for oil in its autonomous Kurdistan region, saying the U.S. company's actions could have dire consequences for the country's stability.

An aide to Iraqi Prime Minister Nuri al-Maliki told Reuters of a letter the premier had sent, seeking Obama's intervention, as Kurdistan said on Tuesday it would sign more deals with majors to raise its output five-fold.

Turkey also signaled it was prepared to import oil directly from Kurdistan, potentially defying Baghdad, which has a long-running dispute with Kurdistan over oil export controls.

Exxon angered Baghdad last year by signing an exploration deal with the Kurdistan Regional Government (KRG) in the north, which the central government deemed illegal.

"Prime Minister Nuri al-Maliki explained to President Obama in the letter sent this month the dire consequences of the Exxon deal and its negative impact on Iraq's stability," Maliki's media adviser Ali al-Moussawi said.

Since the last U.S. troops withdrew from Iraq in December, disputed areas between Kurdistan and Baghdad have been seen as a potential flashpoint for conflict as tensions between the two regions rise, without the buffer of a U.S. military presence.

Iraq's oil minister said in April that Exxon had written to Baghdad informing it that it had suspended work in the Kurdish region.

"Despite Exxon's letters about the freezing of their work in the region, we still receive information that suspicious work is going on relating to their exploration activities," Moussawi said.

"The point of the message was clear. The U.S. administration must intervene," he added.

KURDISTAN SAYS OIL MAJORS CIRCLING

Kurdistan announced in November the signing of a deal for six exploration blocs with Exxon, the first major oil company to deal directly with the Kurds in northern Iraq.

Iraqi Kurdistan, which has its own government and armed forces, has already clashed with the central government over autonomy and oil rights, and halted its crude exports in April after accusing Baghdad of not making due payments.

On Tuesday, Kurdistan's natural resources minister said it expects more oil majors to follow Exxon in the next few months and that oil shipments would resume.

"The market is very buoyant in Kurdistan. We have a lot of majors circling around looking at new PSCs (production-sharing contracts) and certainly mergers and acquisitions," Ashti Hawrami told an energy conference in London.

"So in the next few months, we expect to see another two or three major companies coming and working in Kurdistan."

Exxon is one of the oil majors participating in massive projects in central Iraq, which is due to become the biggest source of additional oil for world markets in the next decade.

But as exploration terms with the central government look less and less attractive, companies begin to look at Kurdistan.

Exxon is keeping a low profile in Kurdistan but industry sources said the company had already issued a tender for drilling rigs while French rivals Total (TOTF.PA) and Norway's Statoil (STL.OL) are also looking at exploration blocks there.

Exxon was not available on Tuesday to comment on Maliki's letter. Total and Statoil have previously declined to discuss their plans in Kurdistan.

The KRG halted oil exports in April due to a payment dispute with Baghdad. Before then, contractors in Kurdistan were producing and exporting about 200,000 barrels per day (bpd).

"The oil will flow ... regardless of an agreement, and I infinitely prefer an agreement," said Hawrami. By 2014 to 2015, output should grow to 1 million bpd, he said.

"When you have 1 million barrels a day stranded, it will find its way to the market despite the political haggling."

"We expect more discoveries this year to bring us to our new target of 2 million barrels per day by 2019."

PIPELINE TO TURKEY

Kurdistan has started plans to begin exporting its crude oil along a new pipeline to the Turkish border by August 2013.

Turkey signaled on Tuesday that was prepared to import oil directly from Kurdistan despite Baghdad's stance that it has the sole right to exports.

"Turkey cannot stay indifferent to developments in the energy sector of Iraq, including those in the KRG," Berris Ekinci, Deputy Director General for Energy, Water and Environment at Turkey's ministry of foreign affairs, told the London conference.

"The most important thing will be the market drivers," she said in reference to Turkey's potential purchases of Kurdish oil.

Small scale deliveries are expected to commence in coming weeks, when Kurdistan starts up a crude-for-products swap with Turkey, she told Reuters.

Industry sources say the KRG is gearing up to move crude by tanker truck to Turkey - possibly as part of the arrangement. Kurdistan is short of key products, including diesel and kerosene. It receives only 15,000 bpd of fuel from southern Iraq.

"The volume (from Turkey) will increase incrementally," said Ekinci. "But neither the start date nor the volume has been set yet."

Turkey, which shares a border with Kurdistan, has increasingly courted Iraqi Kurds as its relations with the Shi'ite-led central government in Baghdad have soured. Turkey is a major investment and trading partner for Iraq, especially for Kurdistan.

(Additional reporting by Julia Payne; Writing by Dmitry Zhdannikov; Editing by Anthony Barker)

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