ExxonMobil Operations in Iraq

= History= In the first half of the 1900s, ExxonMobil held a 23.75% share (held in two equal parts by the then-separate companies of Exxon and Mobil) in the Iraq Petroleum Company (IPC) along with Total, Shell and BP. Exxon and the other foreign oil majors' assets in Iraq were taken over by the Iraq National Oil Company after they were nationalised by Iraq's Ba’athist government in June 1972.

ExxonMobil restarted operations in Iraq in 2009 after winning a contract, as part of a consortium, to rehabilitate and redevelop the West Qurna Phase 1 field in southern Iraq. In November 2011 the company signed contracts for six exploration blocks with the Kurdistan Regional Government (KRG). The Iraqi central government in Baghdad claims all contracts with the KRG are illegitimate, and as of October 2012 ExxonMobil was attempting to sell its stake in West Qurna Phase 1 as it prepared to start drilling in Kurdistan.

Exxon's move into the Kurdistan region has broad geopolitical implications, and Kurdish President Massoud Barzani compared Exxon's investment in the region to "the equivalent of 10 military divisions". On the back of escalating tensions in late 2012 over disputed territories between the KRG and the central government, a high-ranking military officer told the Washington Post that if an oil company were to begin working in the disputed areas it would be considered "a declaration of war". According to the report Exxon's contracts are the most controversial of those signed with the Kurds because of the company’s iconic stature and the location of its exploration blocks, on the southernmost edges of Iraqi Kurdistan’s interpretation of its territory.

=Activities and Contracts=

West Qurna Phase 1
In 2009 the company formed part of a consortium alongside Shell which won the contract to develop West Qurna Phase 1, a field which holds holds 8.7 billion barrels in proven oil reserves, thus ensuring their position as one of the largest players in postwar Iraq. This agreement was formalised in January 2010 when ExxonMobil Iraq Limited, an affiliate of ExxonMobil, signed an agreement with the Iraq Ministry of Oil. The agreement designated ExxonMobil as the lead contractor with a 60% interest in the consortium, with the Iraqi state-owned Oil Exploration Company holding a 25% interest, and Shell holding a 15% interest.

ExxonMobil's signing in November 2011 of exploration contracts with the KRG, which the government in Baghdad considers illegal, put its field development contract at West Qurna Phase 1 at risk, said Abdul Mahdy al-Ameedi, head of Iraq's Petroleum Contracts and Licensing Directorate. Ameedi told Dow Jones Newswires that Exxon could be replaced at West Qurna 1 by Shell, which holds a minority (15%) interest in the development contract, or potentially any other company. In the aftermath of the KRG contract signing the Iraqi government also considered imposing sanctions on ExxonMobil, according to Deputy Prime Minister for Energy Hussain al-Sharistani, though it was not clear under what legal authority it might do so.

Reuters reported in November 2012 that the company was in advanced stages of talks to sell its stake in West Qurna Phase 1, to enable it to focus on its deal for exploration blocks in Kurdistan,. Deputy Prime Minister for Energy Hussein Shahristani told Iraq Oil Report that a deadline of the end of 2012 had been set to conclude the deal, however transfer of operations was likely to take longer. The Wall Street Journal quoted a source saying that the project was never expected to be lucrative under the best of circumstances, and that the $1.90 license fee would barely be enough to cover the company's costs.

Bashiqa, al-Qush, Arbat East, Betwata, Pirmam and Qara Hanjeer (Kurdistan)
In November 2011 ExxonMobil became the first oil major to sign an oil and gas exploration contract with the Kurdistan Regional Government (KRG), in a deal that includes six exploration agreements. The six blocks in the contract include Bashiqa and al-Qush, located on the southwestern border of KRG-controlled territory; Arbat East, located in the Zagros Mountain area near the Iranian border; Betwata and Pirmam, which are northeast of Erbil; and Qara Hanjeer, which spans the border between the KRG and disputed areas in Kirkuk.

Before ExxonMobil made this move, large international oil companies (IOCs) had refrained from signing deals with the KRG because, as of October 2012, the KRG remained locked in a feud with the Iraqi central government in Baghdad over land and oil rights. Three of the blocks included in the ExxonMobil-KRG contracts are in areas disputed by the KRG and Baghdad. The Financial Times wrote at the time of the signing that the deal could prove a catalyst for oil development in Kurdistan, and indeed, as of November 2012 several firms - Total S.A., Chevron and Gazprom - had flouted Baghdad's wishes and signed contracts with the KRG.

Iraq Oil Report quoted an Iraqi official in October 2012 as saying that the company had spent somewhere between $200 million and $250 million in Kurdistan so far. Over the course of the contracts, Exxon committed to a cumulative $500 million work plan, which includes drilling five exploration wells in at least five of the six blocks, and two-dimensional (2-D) seismic testing in the four blocks that have yet to undergo the process. The Bashiqa and al-Qush had undergone 2-D seismic testing before Exxon took control, according to Iraq Oil Report, and drilling is to start there first. An Iraqi official told the website that ExxonMobil would "start moving dirt in December [2012]".

As a result of its contracts with the KRG, the Iraqi Ministry of Oil excluded ExxonMobil from its fourth licensing round for oil contracts, held in May 2012.

=Other activities=

Water Injection Project
Abdul Mahdy al-Ameedi of the Petroleum Contracts and Licensing Directorate announced in April 2010 that ExxonMobil had been picked to lead a multibillion-dollar water-injection project along with other international oil companies (IOCs) with contracts in southern Iraqi oilfields. The water injection project aims to provide water to maintain reservoir pressure - and thereby improve oil recovery - in fields such as Rumaila, West Qurna Phases 1 and 2, Zubair and Majnoon. After disputes over costs delayed the project for months, the Iraqi government and the oil companies came to an agreement in October 2011 to build the plant. Ameedi said the project would process some 10 to 12 million barrels of water a day from the Persian Gulf for injection into the oil fields, with the project taking two to three years, ramping up as the southern oil fields increase production.

But ExxonMobil was was removed from the project in February 2012. Dhiya Jafaar, head of the state-run South Oil Company (SOC) said the removal of Exxon from leadership of the project was not connected with the company's Kurdish deals, and instead blamed poor coordination and project economics submitted by Exxon, according to Reuters. In October 2012, Bloomberg reported that the SOC had awarded CH2M Hill a $170 million consultancy contract to take part in the project, effectively replacing ExxonMobil. Dhiya Jaafar, head of the SOC, said the South Oil Company would be the leader of the project.

= References =