February 9, 2012 / 4:33 PM / in 7 years

INTERVIEW-Iraq sets new condition for Exxon on Kurdistan

By Peg Mackey	
    BAGHDAD, Feb 9 (Reuters) - Exxon Mobil can
keep developing Iraq's supergiant West Qurna-1 oilfield,
provided it freezes a plan to move into semi-autonomous
Kurdistan that has fanned tensions between Baghdad and Arbil, a
senior Iraqi oil official told Reuters on Thursday.	
    Abdul Mahdy al-Ameedi, head of Iraq's contracts and
licensing division, also said Exxon has been stripped of its
role as project leader for a multi-billion-dollar water
injection scheme that is core to the development of Iraq's
supergiant oilfields in the south.	
    He insisted the move was not in retaliation for Exxon's
involvement with the Kurdistan Regional Government (KRG).	
    Baghdad has been threatening to rip up the West Qurna-1
contract ever since Exxon's deal in Kurdistan came to light
three months ago. 	
    But a new condition was set by Oil Minister Abdul-Kareem
Luaibi at a meeting with Exxon executives in Baghdad at the end
of last month.	
    "The minimum requirement, if Exxon doesn't want West Qurna
to be terminated, would be to inform the Ministry of Oil in
writing that it will freeze its contracts in Kurdistan until
there is an agreement between the KRG and Baghdad or the
Ministry of Oil approves the contracts," Ameedi said.	
    Exxon was the first oil major to test the water by signing
up for six blocs with the KRG, which is locked in a feud with
the Arab-dominated central government over land and oil rights.
Three of the blocs are in areas disputed by Arbil and Baghdad.	
    "The KRG can't award blocs outside the border of Kurdistan,"
said Ameedi.	
    Baghdad's new condition for Exxon follows previous hardline
statements, but officials acknowledge their concern that more
companies involved in Iraq's massive oil opening could follow
Exxon into the more stable north.	
    "It is a big concern," said Ameedi. "We don't intend to lose
our relations with any international oil companies that have
signed contracts with the Ministry of Oil. It's their choice to
be with us."	
    Despite Baghdad's tough line, Ameedi said it was business as
usual for Exxon at West Qurna-1. "They are still spending money
and working," he said.	
    Exxon, with minority partner Royal Dutch Shell, has
already raised output to about 390,000 barrels per day from
244,000 bpd when the pair signed up for West Qurna-1 in early
2010. The contract targets output of 2.825 million bpd by 2017.	
    Industry sources said they doubted the U.S. major would
respond to Baghdad's latest warning and said the company was
likely to continue with its low-profile mobilisation in Arbil.	
    Major oil investors have been frustrated by infrastructure
bottlenecks, poor coordination, delayed payments and Iraqi red
tape in southern Iraqi oil projects. Exxon has yet to comment on
the Kurdistan play.	
    Iraq signed a series of deals with international oil firms
such as Exxon to boost its output capacity to 12 million bpd by
2017 from about 2.9 million bpd now. But it may eventually lower
the target due to infrastructure constraints.	
    	
    	
    UNACCEPTABLE DELAYS	
    The crucial water injection scheme that Exxon had led until
this week has been on the books for two years. But Iraq's
state-run South Oil Company and SCOP, an oil ministry unit,
would now take over leading the project, Ameedi said.	
    "The progress that has been made is unacceptable," he said,
blaming delays on the companies involved - Exxon, BP, Eni and
Lukoil.	
    "Exxon is no longer leading this. We told them to stop all
new activity from yesterday," said Ameedi. "It was because of
delays associated with this megaproject."	
    Rumours were rife when Exxon's deal surfaced that Iraq's
Deputy Prime Minister for Energy Hussein al-Shahristani, an
ardent critic of Arbil, would remove Exxon as the lead company
as a punishment.	
    But Ameedi said Iraq could not take any action against Exxon
because of the Kurdistan bloc deal until the central government
had drafted its formal legal response.	
    Exxon at West Qurna, BP at Rumaila and Eni at Zubair have
all reached the first production milestone that triggers cost
recovery and fee payment.	
    Ameedi said payments were progressing despite delays because
of initial misunderstandings over the invoicing procedures until
the ministry formulated a new approach.	
    While BP and Eni have signed export oil sales agreements 
that allow them to be repaid in crude liftings, Exxon has
steadfastly refused and has opted for cash payment. So far the
company has received $470 million, having spent $911 million,
said Ameedi. [TABLE:   ].	
    "Now we are on the right track. I don't expect any delays in
payments this year," he said.	
    	
    GULF EXPORT TERMINAL	
    Addressing infrastructure constraints, Ameedi said Baghdad
will start to export on Sunday from a new Single Point Mooring
(SPM) in the Gulf. Export capacity in the south will then rise
from roughly 1.7 million bpd to 2.6 million bpd.	
    That will be enough to accommodate the extra oil that is
expected to be pumped from southern oilfields this year. Iraq's
production averaged 2.7 million bpd in 2011, with exports
running at 2.2 million bpd. Official targets for this year are
3.5 million bpd for production and 2.6 million bpd for exports.	
    Industry sources involved in Iraq's oil expansion are more
cautious. They see production growing to 3 million bpd and
exports running at 2.5 million bpd.	
    Ameedi said he expected growth of 550,000 bpd this year from
the giant oilfields developed by foreign partners in the south. 	
    He said output at Rumaila, Iraq's biggest producer, is
expected to average 1.35 million bpd this year - up from 1.14
million bpd in 2011. 	
    Production there was affected by bad weather, tight storage,
operational problems with the field's ageing kit and attacks on
export pipelines outside the field that hit Rumaila's output.	
    The Iraqi oil official said good progress and "prep work"
were being done by contractors on gas field development
contracts awarded in the country's third auction. 	
    Turkey's TPAO at Mansuriyah has submitted its provisional
plan. Korea's Kogas at Akkas is preparing a
preliminary plan and Kuwait Energy has submitted its scheme for
the Siba gas field near the border with Kuwait.	
    As for the fourth licensing round, which focuses on
exploration, Ameedi said delays to the auction would give the
companies and the oil ministry more time to prepare. Iraq once
again delayed the round for 12 new gas and oil exploration
blocks to May 30-31 after making major changes to the contract.	
     	
 Iraq's Oil Development Programme Update	
 Field     Operator  Output    Est.      Spending  Payment
                     2011      2012      end '11   end '11
 Rumaila   BP        1.14      1.35      2.20      1.94
 WQurna-1  Exxon     0.31      0.43      0.91      0.47
 Zubair    Eni       0.24      0.29      1.10      0.53
 Missan    CNOOC     0.10      0.14                
 Majnoon   Shell     0.05      0.11                
 Halfaya   CNPC      0.00      0.07                
  Total              1.84      2.39      4.21      2.94
 	
    Output in '000 barrels per day	
    Spending/Payment $ billion	
    Figures for spending and payment are only for companies that
have reached Iraq's initial production threshold, which triggers	
cost recovery and payment.	
    Source: Iraq Ministry of Oil	
	
 	
    	
	
 (Reporting by Peg Mackey; editing by Patrick Markey and Jason
Neely)
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