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Exxon’s Huge Iraqi Oil Deal Under Threat

Irina Slav

Contractual disagreements and the deteriorating security situation in the Middle East have threatened Exxon’s US$53-billion deal with the Iraqi government, Reuters reported today, citing sources in the know who wished to remain unnamed.

The deal has been in the making for four years and will involve the development of two oil fields in southern Iraq—Nahr Bin Umar and Artawi—and the construction of water supply infrastructure to southern fields in order to keep their production steady. As a result of the project, the combined production of Nahr Bin Umar and Artawi should hit half a million barrels of oil daily, from 125,000 bpd today.

It seems, however, that there are serious differences of opinion regarding the terms of the contract, Reuters’ sources said, adding the biggest problem was the way Exxon wanted to be compensated for the money it spends on the development of the fields. The supermajor apparently wants a production-sharing stipulation, which Baghdad opposes on the grounds that it would be at odds with its rule to keep oil production state-owned.

At the same time, security concerns are mounting, especially after the latest developments between the U.S. and Iran following the shooting by the Iranian military of a U.S. drone. Exxon has already evacuated staff from Iraq twice, once in May and the second time earlier this month, which was not welcomed by Baghdad.

The disagreements between Exxon and Iraq on the megacontract are not new. They surfaced last year as well, delaying the finalization of the deal that Baghdad hopes would boost its oil production capacity to as much as 6.5 million bpd by 2022. This compares to a current production capacity of below 5 million barrels.

Even earlier, back in 2012, these disagreements led to the shelving of the contract for three years before negotiations were renewed. It seems the end of these negotiations is not so close as earlier statements from Iraqi officials suggested.

By Irina Slav for Oilprice.com

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