Exxon’s Kurdish Exploration May Scuttle Other Iraq Projects

Exxon Mobil Corp. (XOM), the U.S. oil company that helped engineer a 48 percent production increase from Iraq’s West Qurna field in one year, risks a backlash from that nation’s central government by signing exploration deals with semi-autonomous Kurds.

Exxon, the world’s biggest company by market value, recently signed contracts with the Kurdistan Regional Government to explore six blocks in the country’s north, Michael Howard, an adviser to the regional authority, said today in an e-mailed statement.

Exxon may be jeopardizing existing oilfield-development agreements overseen by Iraq’s central government, Abdul-Mahdy al- Ameedi, the head of the Baghdad-based Oil Ministry’s licensing department, said today in a telephone interview. A dispute between Baghdad and the regional government over oil contracts led to a temporary suspension of crude exports in 2009.

“They know very well that any company will be disqualified from implementing its contract with the Oil Ministry” if it signs a deal with Kurdish regional authorities, Al-Ameedi said. “It’s the public policy of the Oil Ministry that companies have to choose one of two options: The KRG or the Oil Ministry.”

Alan Jeffers, a spokesman for Irving, Texas-based Exxon, declined to comment. The company’s shares gained 1 percent to $79.47 at 12:49 p.m. in New York. The stock has risen 9.2 percent this year, poised for the biggest annual gain since 2007.

No Blacklist

The Oil Ministry’s warning may be an empty threat, given the importance of Exxon’s expertise to central government efforts to lift production in southern oil fields, said Richard Quin, lead analyst for Middle East-North Africa energy research at Wood Mackenzie Consultants Ltd.

“It wouldn’t be in Iraq’s best interest to effectively rip up their contract,” Quin said in a telephone interview from Edinburgh. “That would be detrimental to Iraq’s expansion of southern exports.”

Iraqi law also appears to be on the side of Exxon and its Kurdish partners, Quin said.

“There is no legislation or real mechanism for Baghdad to really force through a blacklist,” he said.

Exxon, whose worldwide crude output exceeded that of every member of the Organization of Petroleum Exporting Countries except Saudi Arabia, Iran and Venezuela last year, is the latest Western entrant into Kurdistan. Others include Vallares Plc, the explorer founded by former BP Plc (BP/) Chief Executive Officer Tony Hayward, Afren Plc (AFR), Hess Corp. (HES), Murphy Oil Corp. (MUR), Marathon Oil Corp. (MRO) and Repsol YPF SA. (REP)

Shares Rise

The announcement of Exxon’s Kurdish contracts boosted the shares of other explorers that are targeting the region. Gulf Keystone Petroleum Ltd. (GKP) surged 33 percent in London trading, while DNO International ASA (DNO) jumped 31 percent in Oslo.

An index of 10 Western oil companies with Kurdish exploration agreements rose as much as 3.3 percent today, the biggest intraday gain since Oct. 27.

Iraqi political leaders will have a say in how the central government and Oil Ministry react to Exxon’s Kurdish agreements, Al-Ameedi said.

Any decision on whether to penalize Exxon wouldn’t only be a commercial decision, he said. “The ministry needs to discuss with the cabinet in order to take the right action.

Exxon and partners Royal Dutch Shell Plc (RDSA) and Iraq’s Oil Exploration Co. boosted production from the West Qurna field in the southern part of the country to 370,000 barrels a day last month from about 250,000 barrels a year earlier.

The companies are injecting water into the field to flush more crude to the surface, under the terms of a 20-year development deal signed in January 2010.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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