Iraq Hasn’t Agreed to Recognize Kurdish Drilling Contracts

Iraq, home to the world’s fourth- largest oil reserves, hasn’t agreed to recognize the validity of drilling contracts in the semi-autonomous Kurdish region after Exxon Mobil Corp. (XOM) signed exploration contracts in the north.

“The Iraqi government will treat any company breaching its laws in the same way it has treated similar companies in the past,” the media office of Hussain al-Shahristani, the country’s deputy prime minister for energy affairs, said today in an e-mailed statement. “The ministry of oil has informed Exxon Mobil of this position.”

Alan Jeffers, a spokesman for Irving, Texas-based Exxon, declined to comment. The Baghdad-based central government and Kurdish authorities haven’t been able to agree on how to oversee drilling and the allocation of revenue from the Persian Gulf nation’s vast crude reserves since the fall of Saddam Hussein in 2003. Relations reached a low point in 2009 when oil exports were temporarily suspended.

Prime Minister Nouri Kamil al-Maliki and Kurdistan Regional Government leader Barham Salih held talks during the past three weeks that had ended the risk that foreign oil producers would be stripped of some oilfield projects as punishment for signing contracts in the Kurdish-controlled north, two people familiar with the talks said earlier this week.

Iraq will recognize the validity of drilling contracts signed by the Kurdish regional authorities under terms of an agreement to be announced this month, they said, speaking on condition of anonymity because the talks aren’t public.

Six Blocks

“Some media cited a story saying that Vice President for Energy Affairs Hussain al-Shahristani had approved that a U.S. company operating in southern Iraq explore oil in the Kurdistan province,” the ministry said. “We affirm that this story is not true altogether.”

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 yesterday in an e-mailed statement.

The company 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, Hess Corp., Murphy Oil Corp., Marathon Oil Corp. and Repsol YPF SA.

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 statistical review of global energy. Canada’s oil sands are counted as a different category from so-called conventional resources in the BP statistics.

To contact the reporters on this story: Nayla Razzouk in Amman at nrazzouk2@bloomberg.net; Kadhim Ajrash in Baghdad at kajrash@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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