Exxon may exit from south Iraq oil project

LONDON/WASHINGTON - Reuters

Employees are seen working at a Basra oil facility. Exxon Mobil wants to leave its flagship Iraqi oil project, the estimated $50 billion worth West Qurna-1. REUTERS photo

Exxon Mobil wants to leave its giant oilfield project in southern Iraq, diplomatic sources said, in a move likely to aggravate the country’s internal tensions and hamper Baghdad’s ambitious energy expansion plans. The move by Exxon, which is dedicated to projects in northern Iraw may also raise tensions between the Kurdistan Regional Government (KRG) there and central Baghdad government.

The desire of the world’s largest publicly traded oil company to quit was due to prospects of slim profits from the estimated $50 billion West Qurna-1 project, the sources said.

400,000 barrels a day

An exit from the project would contrast with a deal Exxon signed a year ago to explore in the KRG regions, where incentives are better. Baghdad deemed the KRG deal illegal and promised to punish Exxon by ripping up its contract for West Qurna-1, which has reserves of 8.7 billion barrels. West Qurna-1 now pumps about 400,000 barrels per day of Iraq’s overall production of just over 3 million bpd.

Executives at the company this week told U.S. State Department officials it was looking to sell its 60 percent stake in the project, diplomats from two Western countries said. “Exxon is telling Baghdad: ‘We are letting you know we’re looking to leave,’” one of the diplomats said. “They are shopping around and looking at all the options.”

The company declined to comment, as did the U.S. State Department. The departure of Exxon from southern Iraq now hinges on its ability to find a company willing to buy out its stake in West Qurna-1, industry sources say.

“If they can find the right buyer, they will pull out,” said an industry executive. “It’s an unusual move for Exxon.”

Industry sources said Baghdad is keen to replace Exxon with companies from Russia, or even China, to teach Western oil majors a lesson.

U.S. Secretary of State Hillary Clinton did not comment on Exxon during a speech on energy diplomacy at Georgetown University on Oct 18. But in response to a question about whether Russian companies might dominate in Iraq if the Exxon leaves the project, she was not worried. Russian, American, French and Chinese companies all will be competing in Iraq and will be operating within the economic marketplace the global market place sets, she said.

Other oil firms, such as Chevron, Total. Russia’s Gazprom Neft and Genel Energy are also active in northern Iraq.

The dispute over oil contracts is part of a broader battle between Baghdad and the KRG over oil rights, territory and regional autonomy that is straining Iraq’s uneasy federal union. Iraq’s Shi’ite Prime Minister Nuri al-Maliki has asked U.S. President Barack Obama to force Exxon to pull out of West Qurna.

While Iraqi Deputy Prime Minister Hussain al-Shahristani met Exxon executives in Baghdad this summer and threatened to kick the company out, practical and legal constraints limit Baghdad’s scope for action.