Western oil companies are flocking to Erbil, capital of this semi-autonomous
region of northern Iraq, to secure exploration and drilling contracts. The
prize: a possible 50bn barrels of oil, or 40 per cent of Iraq’s proved
reserves. Yet Iraq remains bitterly divided.
Critically, there is no agreement between Baghdad and the regions on a
petroleum law and the sharing of resource revenues. Oil company bosses could
be walking themselves and their investors into a legal and political
minefield.
Exxon and Kurdistan
The deal that epitomises the scramble is the $2.1bn takeover of
Kurdistan-focused Genel Energy in September by Vallares, backed by former BP
boss Tony Hayward and financier Nathaniel Rothschild. Now ExxonMobil has
joined the rush. The government of Kurdistan signed drilling contracts with
the US supermajor last month. The region is said to want to boost its oil
output to 1m barrels a day within five years, from 150,000 a day now.
Investors in exploration companies already established in the region stand to
reap early rewards. The share prices of the likes of DNO, Gulf Keystone and
Petroceltic initially jumped 30 per cent on the Exxon news. They are among
some 40 exploration companies that stand to gain as producers move in. With
Iraq set to become the main source of new oil supplies in the next 25 years,
a flood of investment is already under way.
Baghdad
But Iraq’s hard realities must be handled with sensitivity. Exxon’s agreement
with Erbil has angered Baghdad. It regards such Kurdish deals as illegal and
has threatened to cancel existing contracts between Exxon and Iraq.
Shell has withdrawn from contract talks with the Kurdish government to avoid
the same fate. Exxon’s move makes an oil law for Iraq all the more urgent.
The majors should not play one side against the other, however. Until Iraqis
sort out their future, the risk for oil company investors is that fools rush
in.
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