LONDON/ARBIL, Iraq Jan 23 (Reuters) - Exxon Mobil's top executive has met with the president of Iraqi Kurdistan after Baghdad made the U.S. major an offer in an apparent bid to keep it operating in the south of the country, industry sources said.
The meeting took place in Davos on Tuesday, a day after Exxon Chief Executive Rex Tillerson met Iraqi Prime Minister Nuri al-Maliki and asked whether the U.S. major could stay in the south despite signing deals with the Kurdish region.
Last year, Exxon offered to sell its stake in the huge southern West Qurna-1 oilfield after fighting with Baghdad over its contracts with autonomous Kurdistan, deals which the central government in Baghdad rejects as illegal.
"Baghdad wants to lure Exxon in. Will they bite?" said one oil industry source.
Another Western oil executive from a company involved in the south said Exxon would likely need to see improved conditions on its West Qurna deal to stay in the south.
Any change in Exxon's position would be a major win in favour of Baghdad in the bitter dispute over oil between Iraq's government and Kurdistan that is straining Iraq's uneasy federal unity.
A statement on the website of the Kurdistan Regional Government (KRG) said Tillerson met with President Masoud Barzani to discuss the company's operations, without giving any further details.
Exxon was the first major oil company to test the waters by signing for six blocs with the Kurdistan Regional Government (KRG) in 2011, upsetting Baghdad which says only the central government has the right to oilfield deals and to control exports of the OPEC member's crude.
"You don't engage at CEO level unless there is something substantial on the table," a chief executive of a rival oil company operating in the south said.
Iraq has been clear in the past that foreign oil companies operating in the south should give up their contracts with the Kurdish region or risk losing assets in the rest of Iraq.
It was not clear whether Baghdad's offer was conditional on Exxon putting its Kurdish assets on hold, and further details were not immediately available, but Iraq's oil minister hinted a week ago that sweeter terms could be on offer.
"We wish Exxon would stay and work with us. When we talk about West Qurna, we are talking about double of what is going to be achieved in the Kurdistan region," Abdul Kareem Luaibi told Reuters in an interview.
"We have started our preparations for the fifth licensing round, which is going to be with completely different contract shapes that are going to be very attractive to the oil companies."
Oil majors have been lured north by better contract terms, security and an easier working environment compared with the bureaucracy and infrastructure bottlenecks which hamper oil projects in the rest of Iraq.
Iraqi officials said late last year that China National Petroleum Corp, or CNPC, had emerged as the favourite in negotiations to take over Exxon's 60 percent stake in the $50 billion West Qurna-1 project.
Iraq's central government and the KRG have long feuded over control of oil revenues, oilfields and territory, but the Exxon talks come with the country caught in a crisis over power-sharing among Shi'ite Muslims, Sunnis and ethnic Kurds.
Any Exxon offer from Baghdad would emerge at a time when Shi'ite premier Maliki is struggling to manage increasing political pressure from Sunni street protests that have complicated his government's fight with Kurdistan.
While Iraq's government says it alone has the legal authority to export crude and sign deals, Kurdistan says its right to grant contracts and ship oil is enshrined in the constitution.
Attempts to resolve the dispute have failed in part because of disagreements over a long-delayed oil and gas law meant to set a clearer framework for managing the world's fourth largest oil reserves.