November 13, 2011 / 9:06 AM / 7 years ago

UPDATE 4-Iraqi Kurdistan confirms Exxon oil deal-minister

* Iraq says deal could jeopardise Exxon’s Qurna contract

* Kurdish exports to rise next year

* Salih says new oil law to go to parliament by year-end

By Serena Chaudhry

ARBIL, Iraq, Nov 13 (Reuters) - Iraq’s Kurdish region has signed an exploration deal with Exxon Mobil, a Kurdish official said on Sunday, confirming a deal that Iraq has said could jeopardise the U.S. oil giant’s southern oilfield contract.

Natural Resources Minister Ashti Hawrami said the Kurdistan Regional Government (KRG) signed a contract with Exxon in mid-October for six exploration blocks in the semi-autonomous region.

Iraq’s central government, which has long-running disputes with the Kurdish region over oil and land, has said Baghdad would consider a deal between Exxon and the KRG illegal and a violation of the company’s contract to develop Iraq’s 8.7-billion-barrel West Qurna Phase One oilfield in the south.

“It is a binding contract,” Hawrami said at an oil and gas conference in the Kurdish capital, Arbil. “It was signed completely on the 18th of October 2011.”

It was the first official confirmation from the KRG. Exxon has yet to comment on the deal.

Iraqi Kurdistan has enjoyed more stability and security in recent years than the rest of Iraq, which is struggling with stubborn violence from insurgents and militias more than eight years after the U.S. invasion that toppled Saddam Hussein.

The KRG has signed contracts with a number of smaller foreign firms to develop oilfields in the region, but the contract with Exxon would be its first with a global oil major.

Baghdad disputes the validity of the contracts, saying it has the right to control development of the world’s fourth largest oil reserves.

Abdul-Mahdy al-Ameedi, the director of the Iraqi oil ministry’s contracts and licensing directorate, said on Friday the government had sent three letters to Exxon Mobil warning that any deal with the KRG would be considered illegal.

Ameedi said such a deal could result in the termination of Exxon’s contract to develop West Qurna Phase One field, a deal Exxon and partner Royal Dutch Shell clinched in 2009.

In June, Deputy Prime Minister Hussain al-Shahristani said West Qurna Phase One production had hit 350,000 barrels per day and was expected to reach 400,000 bpd by year-end.

A statement on Exxon from Shahristani’s office on Saturday said Iraq would deal with any company that violates its laws “in the same way that we dealt with similar companies previously”.

Iraq announced in September that it would bar U.S. oil firm Hess Corp from competing in its fourth energy auction, scheduled for next year, because the company signed deals with the Kurdish region.

But analysts said Exxon’s participation in the southern deal may be too important for the central government to carry out any threats over the Kurdistan deal.

“Baghdad’s threat to Exxon Mobil is just that, a threat. Baghdad will not cancel the company’s contract in southern Iraq because Exxon Mobil is not a small company and it knows the consequences of every step,” said Ali Hussain Balou, former head of the oil and gas committee in parliament and now an analyst.

AMBITIOUS PLANS

The fields include one in Arbat, another field north of Arbat, one near the Marathon bloc, and three others in Al-Qhosh, Khanki and Perimam, according to a senior Kurdish oil ministry official.

The Exxon deal could further Iraqi Kurdistan’s ambitious plans to boost production from the region.

The chief executive of Norway’s DNO told Reuters on Sunday that his company would increase crude output capacity at its Kurdish Tawke field to 100,000 bpd next year, although production would stay at 50,000 bpd.

Genel Energy said output at the Tak Tak field is now 90,000 bpd and would hit 120,000 in January.

Prime Minister Barham Salih told the oil conference on Sunday that Arbil and Baghdad had agreed to boost Kurdish exports to 175,000 barrels per day next year.

Iraq’s official goal is to raise its production capacity to 12 million bpd by 2017, although the OPEC producer acknowledges a goal of around 8 million bpd might be more realistic.

Current production is 2.9 million bpd, with exports of around 2.1 million. Infrastructure limitations hamper Iraq’s ability to increase exports dramatically.

Salih also said he had agreed with Iraqi Prime Minister Nuri al-Maliki to present a new hydrocarbons law to the Iraqi parliament by the end of the year.

Investors anxious for a more stable legal platform for their investments have been waiting for the new law for years.

The law would be based on a 2007 draft agreed by political blocs, apparently shunting aside a more controversial version approved by the Iraqi cabinet that would have given more power to the central government.

“We have agreed with ... Maliki that we will stick to the original draft of 2007. There may be amendments needed, but these amendments need to be agreed to mutually,” Salih said.

“In case of no agreement on those amendments, the provisions with the original text will be presented to parliament (by year-end) for parliament to decide.”

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