Iraq to Recognize Kurdish Oil Deals With Foreign Explorers

Iraq, home to the world’s fourth- largest oil reserves, will recognize the validity of drilling contracts signed by the semi-autonomous Kurdish regional authorities under terms of an agreement to be announced this month, two people familiar with the talks said.

The deal, worked out between Iraqi Prime Minister Nouri Kamil al-Maliki and Kurdistan Regional Government leader Barham Salih during the past three weeks, ends the risk that foreign oil producers such as Exxon Mobil Corp. (XOM) would be stripped of some oil-field projects as punishment for signing contracts in the Kurdish-controlled north, the people said. They spoke on condition of anonymity because the talks aren’t public.

Hostility between the Baghdad-based central government and Kurdish authorities over how to oversee drilling and allocate revenue from the Persian Gulf nation’s vast crude reserves has simmered since the fall of Saddam Hussein in 2003. Relations reached a low point in 2009 when oil exports were temporarily suspended.

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 earlier today in an e- mailed statement.

Differences Resolved

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 Chief Executive Officer Tony Hayward, Afren Plc (AFR), Hess Corp. (HES), Murphy Oil Corp. (MUR), Marathon Oil Corp. (MRO) and Repsol YPF SA. (REP)

Salih, a U.K.-educated engineer, spent about a week in Baghdad in late October conferring with al-Maliki about the long-standing oil dispute, the people said. The final outstanding differences were ironed out during the past two weeks, they said.

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.

Exxon was little changed at $79.64 at 5:20 p.m. in after- hours trading in New York. The shares have risen 9 percent this year.

Export Goals

Alan Jeffers, a spokesman for Irving, Texas-based Exxon, declined to comment. John Porretto, a Marathon spokesman, said no one was immediately available for an interview.

Earlier today, the announcement about Exxon’s agreement in Kurdistan prompted Abdul-Mahdy al-Ameedi, the head of the Baghdad-based Oil Ministry’s licensing department, to say that the U.S. explorer could be kicked out of the giant West Qurna field project in the country’s south as retaliation.

Richard Quin, lead analyst for Middle East-North Africa energy research at Wood Mackenzie Consultants Ltd., said the central government was unlikely to follow through on al-Ameedi’s threat.

“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.”

West Qurna

Exxon and partners Royal Dutch Shell Plc (RDSA) and Iraq’s Oil Exploration Co. boosted production from the West Qurna field by 48 percent in the past year to 370,000 barrels a day.

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.

Iraq’s 115 billion barrels in estimated crude reserves are among the world’s largest, exceeded only by those of Saudi Arabia, Venezuela and Iran, according to BP’s annual review of global energy reserves. Canada’s oil sands are counted as a different category from so-called conventional resources in the BP statistics.

To contact the reporter on this story: Joe Carroll in Chicago at

To contact the editor responsible for this story: Susan Warren at

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