UPDATE 2-Iraq tells Exxon to choose: Southern Iraq or Kurdistan

Sun Jan 27, 2013 11:22am EST

* Iraq tells Exxon must chose Kurdistan or southern oilfields

* Exxon should make a final decision in few days

By Ahmed Rasheed

BAGHDAD, Jan 27 (Reuters) - Iraq has told Exxon Mobil it must choose between working in its southern oilfields or in Kurdistan, and Baghdad expects the U.S. oil major to make a final decision in a few days, its oil minister said on Sunday.

"We made it clear to Exxon in the last meeting that the answer we expected from them is either to work in the Kurdistan region or to work in southern Iraq," Oil Minister Abdul Kareem Luaibi told reporters.

"Exxon Mobil cannot work in both fields at the same time."

Exxon was the first major oil company to sign agreements with the government of the autonomous Kurdistan region in the north, a move that increased tensions between Baghdad and the Kurds in a long-running dispute over oil, territory and political autonomy.

Baghdad says any deals signed with Kurdistan are illegal, but the government of Kurdistan says the constitution allows it to sign oil agreements without permission from the central government.

Exxon's chief executive met with Iraqi Prime Minister Nuri al-Maliki and with Kurdistan's president last week to discuss operations in both, while industry sources said the U.S. oil major was mulling an offer from Baghdad.

Iraqi officials said at the time that Exxon was moving in the right direction in its policy, but Kurdistan also said the company remained committed to its Kurdish deals.

The feud between Baghdad and the Kurdistan enclave, which has run its own regional administration and armed forces since 1991, has escalated since the KRG began signing deals with oil majors such as Exxon and Chevron.

These deals have also prompted the central government to warn companies they risk losing their assets in the southern part of the country.

"Other oil companies that signed deals in Kurdistan region should face the same scenario, and we have informed them," Luaibi said.

EXPORT CAPACITY, EXPLORATION

Luaibi also said Iraq had expanded crude export capacity at its southern terminals on the Gulf, with the start of simultaneous loading from two offshore Single Point Moorings (SPMs), a significant step toward moving its expected increase in exports.

"Today vessels have started to load crude from the two Single Point Moorings at the same time, and that should remarkably expand our export capacity," said Luaibi.

The minister spoke at the signing of a final exploration and development contract with a Kuwait Energy-led group, part of Iraq's drive to attract more foreign investment to upgrade its oil and gas sector.

The contract provides rights to explore and develop oil block 9, which is located in Iraq's southern Basra province. Kuwait Energy will be the operator with a 70 percent working interest, and Dragon Oil PLC will hold 30 percent.

"Block 9 contains substantial reserves of oil and gas, and we have committed (that) $125 million will be invested at the initial stage of exploration over the next two years," Manssour Aboukhamseen, Kuwait Energy's chief executive, said at the signing ceremony.

OPEC member Iraq is expected to be the world's biggest source of new oil supplies over the next few years. It plans to open up more rounds of auctions for oil and gas blocks.

"We are preparing now for a fifth bidding round for the exploration and development of new blocks across Iraq," Luaibi said.

A handful of international companies won bids last May at Iraq's fourth auction, which had a poor showing because of tough contract terms.

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