Iraq has told Exxon Mobil Corp. (XOM) that the U.S. company’s contracts with the Kurdistan Regional Government to explore in northern Iraq are in violation of the nation’s law, Deputy Prime Minister Hussain al-Shahristani said.
“Exxon Mobil has written to the Iraqi government about this and they have received the response from the ministry of oil and the prime minister’s office that contracts will not be recognized unless they are approved by the Iraqi government,” Shahristani said today in London. “In this particular case, there is a breach of laws and the Iraqi government is considering its actions.”
Commenting on Exxon’s contract for the West Qurna field, signed with the central government in Baghdad, Shahristani said, “There won’t be any discussion with other companies until a decision is made.” Iraq expects to make a decision on Exxon’s continued involvement by the end of the year, he said.
“In the contract there is a very clear article that the company has to respect all the Iraqi laws, rules and regulations,” he said when asked if contracts allow for one company to be replaced with another.
Shahristani said he couldn’t predict when Iraq’s parliament will pass the country’s oil law. The last amended version of the bill was sent to the parliament more than a month ago, he said.
Advice to Wait
State Department spokeswoman Victoria Nuland said that the Obama administration had advised Exxon to wait before making any commitments. “We have had conversations with Exxon for some time, as we have had with all our friends, advising them to wait,” Nuland said at a daily briefing in Washington.
The administration has cautioned companies about the risks of investing in Iraq’s energy sector, she said. The department has advised U.S. companies including Exxon that, if they want to invest in the Iraqi energy sector, “they run significant political and legal risks if they sign contracts” before an agreement on distributing oil revenue is reached, Nuland said.
The U.S. has been urging Iraq to enact the necessary laws for some time, she said.
Exxon spokesman Patrick McGinn said in an e-mail that the company had no comment on the statements by Shahristani and Nuland.
Iraq will discuss production quotas with the Organization of Petroleum Exporting Countries in 2014 and its limit will depend on market conditions, Shahristani said.
The country is “preparing criteria to be used for allocations for member countries,” he said in an interview at a conference in London today. It will present these to the group once Iraq’s output rises to about 4 million or 5 million barrels a day, which is likely to be in 2014 or 2015, he said.
Iraq’s quota will depend on the development of capacity among other OPEC members and global oil demand levels, he said. Demand may be high enough that no formal limit is required, Shahristani said. There is no reason why Iraq’s eventual quota should be lower than that of any fellow members, he said.
“Given Iraqi reserves and developing production capacity, the economic need, the deprived opportunity in the past, the financial surplus that some other member countries have, we really don’t see why Iraq’s quota should be less than any other country,” he said.
Iraq plans to sign a contract with international companies for the construction of a water injection plant soon, Shahristani said. Exxon Mobil’s participation in this project, and in an oil and gas field auction due to be held next year, will depend on the outcome of the dispute over the company’s involvement in Kurdistan, he said.
To contact the reporter on this story: Grant Smith in London at email@example.com