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Iraq talks tough with Exxon
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Iraqi Deputy Prime Minister for Energy Hussain al-Shahristani, then Oil Minister at the Jan. 25, 2010, signing ceremony for West Qurna 1 with executives from ExxonMobil and Royal Dutch Shell. (BEN LANDO/Iraq Oil Report)
By Ben Van Heuvelen of Iraq Oil Report
Published December 16, 2011
BAGHDAD - The Iraqi government is maintaining a hard stance against ExxonMobil even as the two sides have begun talks to resolve a dispute over the company's controversial contracts with the semi-autonomous Kurdistan region.
Prime Minister Nouri al-Maliki met with Exxon CEO Rex Tillerson at the tail end of his trip to Washington, DC, according to Deputy Prime Minster for Energy Hussain al-Shahristani. The negotiations have apparently only just begun.
"The prime minister has met with ExxonMobil, and (Tillerson) has promised to reconsider their contracts in the KRG, but I haven't heard from the prime minister directly what was the commitment made by Tillerson to him," Shahristani said in an interview with Iraq Oil Report.
Iraq's central government enters the negotiations deeply entrenched in its opposition to any of the 48 deals the Kurdistan Regional Government (KRG) has signed with foreign oil companies. Baghdad claims sole responsibility to sign oil contracts and has called Kurdistan's oil contracts illegal, including its new deals with Exxon.
"Before they signed the contract, and after they signed the contract, (Exxon) received a letter from the prime minister and from the minister of oil telling them that signing contracts without the approval of the federal government is a breach of their contract for West Qurna Phase 1," Shahristani said. "That remains to be the position."
Exxon's Oct. 18 deals, made public in early November, make it the largest company to sign with the KRG and signify an enormous vote of confidence in the region. Exxon's move also represents the first time a company has signed contracts with the central government and then defied Baghdad's policy banning oil deals with the KRG.
Under a technical service contract signed in 2010 with the federal Oil Ministry, Exxon is developing the 8.6 billion barrel West Qurna 1 oil field in Basra, which is to reach 2.825 million barrels per day (bpd) in seven years – more than the entire country produces currently.
Exxon has also been in negotiations to lead the construction of a water pipeline that is needed to boost production at several southern oil fields. And the company is currently qualified to bid in a March 7-8, 2012, licensing round for 12 exploration blocks.
These projects and prospects in the south are now in jeopardy – and their fates may be linked.
"Iraq has not taken its decision vis-à-vis ExxonMobil (regarding) the contract that was signed without the approval of the central government," Shahristani said. "Once that decision is taken, of course it will be implemented, in all other areas of bilateral obligations."
As oil minister from 2006 to 2010, Shahristani pioneered a strict blacklist policy, barring companies that signed with the KRG from doing oil deals with the central government.
Exxon's defiance of this policy seemed so brazen – and Exxon had such a well established reputation for being conservative – that many observers speculated the company must have received some type of advance approval from Baghdad.
But Shahristani categorically denied that anyone representing Baghdad had given Exxon a "yes" or even a quiet "maybe."
"Nobody in the central government – from the minister of oil, to the deputy prime minister for energy, to the prime minister himself or the Council of Ministers – ever have given any such indication or signal," Shahristani said.
Shahristani said that the Iraqi government had sent a letter to ExxonMobil seeking to bring them to the negotiating table, but he also suggested that Iraq had not been willing to negotiate without an important pre-condition.
"They have been told that they are welcome to come and discuss it with the Minister of Oil, but first and foremost, they have to acknowledge the authority of the federal government, and to accept the fact that their contracts are not valid without the approval of the central government," Shahristani said.
"Otherwise, what's the point of coming to talk with the central government, if they consider the (KRG) contracts to be valid?"
It's unclear how the dispute might be resolved. Earlier this week, Maliki reportedly suggested that Exxon's KRG contracts could be renegotiated with the involvement of the Oil Ministry, but Shahristani said no such process was in the works.
"This hasn't been discussed," he said. "Those contracts have not even been presented to the Ministry of Oil, so the Ministry of Oil has not studied them – they have no views on that. The sure stand of the central government is that anything that is not approved by the Council of Ministers has no legal value in Iraq."
Exxon's Kurdistan play is the latest episode in a larger story about control over the country's oil and the shape of the Iraqi state. Maliki's government has advocated for strong central powers, while the Kurdistan region has pointed to provisions in the constitution that guarantee a share of oil authority for regions.
The Constitution itself calls for modern oil legislation that could help clarify the lines of authority. Iraq's Cabinet passed a draft law in 2007, but it stalled in Parliament largely because the different camps have fundamentally different ideas about the nature of Iraqi federalism.
Kurdish leaders have worried that too much power concentrated in Baghdad will lead to another dictatorship. They recall the days of Saddam Hussein, when the regime neglected economic development in the north and used its power to pursue genocidal campaigns against the minority Kurds.
"We believe that the evil of centralized system of government that inevitably leads to dictatorship and tyranny has been proven a total, utter failure in Iraq," KRG Prime Minister Barham Salih said in his keynote address to investors at the CWC Kurdistan Oil and Gas Conference in Erbil last month. "We believe that federalism is not only good for Kurdistan, but it is a safety net, an insurance policy, for a united Iraq."
In Shahristani's view, however, a safe and prosperous Iraq depends on central control of the oil sector.
"For me, the unity of the country – the peaceful coexistence of its ethnic and religious and sectarian factions – is extremely important," Shahristani said. "And unless oil is managed centrally and revenues are distributed equally to all Iraqis, oil can be very dangerous, can lead to civil war among the different factions."
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Iraqi Deputy Prime Minister for Energy Hussain al-Shahristani, then Oil Minister at the Jan. 25, 2010, signing ceremony for West Qurna 1 with executives from ExxonMobil and Royal Dutch Shell. (BEN LANDO/Iraq Oil Report)
By Ben Van Heuvelen of Iraq Oil Report
Published December 16, 2011
BAGHDAD - The Iraqi government is maintaining a hard stance against ExxonMobil even as the two sides have begun talks to resolve a dispute over the company's controversial contracts with the semi-autonomous Kurdistan region.
Prime Minister Nouri al-Maliki met with Exxon CEO Rex Tillerson at the tail end of his trip to Washington, DC, according to Deputy Prime Minster for Energy Hussain al-Shahristani. The negotiations have apparently only just begun.
"The prime minister has met with ExxonMobil, and (Tillerson) has promised to reconsider their contracts in the KRG, but I haven't heard from the prime minister directly what was the commitment made by Tillerson to him," Shahristani said in an interview with Iraq Oil Report.
Iraq's central government enters the negotiations deeply entrenched in its opposition to any of the 48 deals the Kurdistan Regional Government (KRG) has signed with foreign oil companies. Baghdad claims sole responsibility to sign oil contracts and has called Kurdistan's oil contracts illegal, including its new deals with Exxon.
"Before they signed the contract, and after they signed the contract, (Exxon) received a letter from the prime minister and from the minister of oil telling them that signing contracts without the approval of the federal government is a breach of their contract for West Qurna Phase 1," Shahristani said. "That remains to be the position."
Exxon's Oct. 18 deals, made public in early November, make it the largest company to sign with the KRG and signify an enormous vote of confidence in the region. Exxon's move also represents the first time a company has signed contracts with the central government and then defied Baghdad's policy banning oil deals with the KRG.
Under a technical service contract signed in 2010 with the federal Oil Ministry, Exxon is developing the 8.6 billion barrel West Qurna 1 oil field in Basra, which is to reach 2.825 million barrels per day (bpd) in seven years – more than the entire country produces currently.
Exxon has also been in negotiations to lead the construction of a water pipeline that is needed to boost production at several southern oil fields. And the company is currently qualified to bid in a March 7-8, 2012, licensing round for 12 exploration blocks.
These projects and prospects in the south are now in jeopardy – and their fates may be linked.
"Iraq has not taken its decision vis-à-vis ExxonMobil (regarding) the contract that was signed without the approval of the central government," Shahristani said. "Once that decision is taken, of course it will be implemented, in all other areas of bilateral obligations."
As oil minister from 2006 to 2010, Shahristani pioneered a strict blacklist policy, barring companies that signed with the KRG from doing oil deals with the central government.
Exxon's defiance of this policy seemed so brazen – and Exxon had such a well established reputation for being conservative – that many observers speculated the company must have received some type of advance approval from Baghdad.
But Shahristani categorically denied that anyone representing Baghdad had given Exxon a "yes" or even a quiet "maybe."
"Nobody in the central government – from the minister of oil, to the deputy prime minister for energy, to the prime minister himself or the Council of Ministers – ever have given any such indication or signal," Shahristani said.
Shahristani said that the Iraqi government had sent a letter to ExxonMobil seeking to bring them to the negotiating table, but he also suggested that Iraq had not been willing to negotiate without an important pre-condition.
"They have been told that they are welcome to come and discuss it with the Minister of Oil, but first and foremost, they have to acknowledge the authority of the federal government, and to accept the fact that their contracts are not valid without the approval of the central government," Shahristani said.
"Otherwise, what's the point of coming to talk with the central government, if they consider the (KRG) contracts to be valid?"
It's unclear how the dispute might be resolved. Earlier this week, Maliki reportedly suggested that Exxon's KRG contracts could be renegotiated with the involvement of the Oil Ministry, but Shahristani said no such process was in the works.
"This hasn't been discussed," he said. "Those contracts have not even been presented to the Ministry of Oil, so the Ministry of Oil has not studied them – they have no views on that. The sure stand of the central government is that anything that is not approved by the Council of Ministers has no legal value in Iraq."
Exxon's Kurdistan play is the latest episode in a larger story about control over the country's oil and the shape of the Iraqi state. Maliki's government has advocated for strong central powers, while the Kurdistan region has pointed to provisions in the constitution that guarantee a share of oil authority for regions.
The Constitution itself calls for modern oil legislation that could help clarify the lines of authority. Iraq's Cabinet passed a draft law in 2007, but it stalled in Parliament largely because the different camps have fundamentally different ideas about the nature of Iraqi federalism.
Kurdish leaders have worried that too much power concentrated in Baghdad will lead to another dictatorship. They recall the days of Saddam Hussein, when the regime neglected economic development in the north and used its power to pursue genocidal campaigns against the minority Kurds.
"We believe that the evil of centralized system of government that inevitably leads to dictatorship and tyranny has been proven a total, utter failure in Iraq," KRG Prime Minister Barham Salih said in his keynote address to investors at the CWC Kurdistan Oil and Gas Conference in Erbil last month. "We believe that federalism is not only good for Kurdistan, but it is a safety net, an insurance policy, for a united Iraq."
In Shahristani's view, however, a safe and prosperous Iraq depends on central control of the oil sector.
"For me, the unity of the country – the peaceful coexistence of its ethnic and religious and sectarian factions – is extremely important," Shahristani said. "And unless oil is managed centrally and revenues are distributed equally to all Iraqis, oil can be very dangerous, can lead to civil war among the different factions."
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