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Exxon's $53 billion Iraq deal hit by contract snags, Iran tensions

Exxons  billion Iraq deal hit by contract snags Iran tensions
Exxon's $53 billion Iraq deal hit by contract snags, Iran tensions

2019-06-21 00:00:00 - Source: Baghdad Post

Just weeks ago, US energy giant Exxon Mobil looked poised to

move ahead with a $53 billion project to boost Iraq’s oil output at its

southern fields, a milestone in the company’s ambitions to expand in the

country.

But now a combination of contractual wrangling and security

concerns, heightened by escalating tensions between Iraq’s bigger neighbor Iran

and the United States, has conspired to hold back a deal, according to Iraqi

government officials.

The negotiations have been stymied by terms of the contract

that Baghdad objects to, said four Iraqi officials involved in the discussions

who spoke to Reuters on condition of anonymity due to the sensitivity of the

matter.

The main sticking point, they said, was the means by which

Exxon proposed to recoup its development costs, with the company aiming to

share the oil produced by two fields - something Iraq opposes, saying it

encroaches on state ownership of production.

One of the Iraqi negotiators said Baghdad would not sign

anything with the current terms proposed by Exxon.

Exxon Mobil declined to comment on the terms of the contract

or the negotiations, with a spokeswoman in Texas saying: “As a matter of

practice, we don’t comment on commercial discussions.”

The deputy oil minister for upstream affairs, Fayadh Nema,

said on Wednesday that talks were ongoing and he expected a deal soon.

The negotiations have also been held up by two separate

evacuations of Exxon staff from Iraq, a result of escalating regional tension

between the United States and Iran.

The first was in May after hundreds of US embassy staff were

sent home over unspecified security threats from Iran, which backs a number of

Shiite armed groups in Iraq. The second was this week following a rocket attack

thought to have targeted the company which local officials blamed on

Iran-backed militias.

Tehran has not commented on the attacks, but the evacuations

highlighted the persistent instability in Iraq that is hindering business,

fueled by the US-Iran tensions.

Iraq one of the only nations in the world to have friendly

relations with both Washington and Tehran; the arch-enemies are its two biggest

allies and Baghdad is caught in the middle as they vie for influence in the

country.

Many Iraqi officials say the stalling of talks with Exxon

and disruptions to its staffing point to the limits of American power in Iran’s

smaller neighbor, and that US-Iran tensions have led to a series of security

incidents including unclaimed attacks on oil tankers in the Gulf.

“Exxon pulled its staff from Iraq in response to regional

unrest. The question is how they will run a $53 billion project with constant

regional instability,” said an Iraqi oil official who oversees foreign

companies’ operations in the south. “They might abandon work again and that

will hurt our energy sector.”

CONTRACT WRANGLES

Iraq is the second-largest oil exporter in OPEC and has

long-term aims to boost output curtailed by decades of war and sanctions. Such

projects are among the most valuable prizes in the world for international oil

companies.

An initial agreement would be a boost for Exxon’s plans to

expand in Iraq. Under the deal, it would build a water treatment facility and

pipelines needed to boost oil output capacity. It would also get the rights to

develop at least two southern oilfields – Nahr Bin Umar and Artawi.

In May, US Secretary of State Mike Pompeo discussed the deal

with Iraqi Prime Minister Adil Abd al-Mahdi twice in three days, during a

telephone call and a surprise visit to Baghdad, a separate Iraqi government

official told Reuters.

Abd al-Mahdi said last month that Iraq was close to signing

the $53 billion, 30-year energy agreement with project leader Exxon and its

partner for the deal, PetroChina.

But the officials who shared details with Reuters over the

proposals from the American oil major said there were differences between the

two parties that could prevent even a preliminary agreement anytime soon.

Exxon has proposed a production-sharing agreement whereby it

recoups its development costs by sharing the output of the Nahr Bin Umar and

Artawi fields with the government.

However Iraq has largely opposed such contracts and over the

past decade has favored so-called service contracts where companies are paid at

a fixed dollar-per-barrel rate.

“We told them that we totally reject any production-sharing

mechanism as it contradicts government energy policy,” said an official who is

part of the negotiating team.

The official added it was too early to say what kind of

contract Iraq would favor. The country has also in the past struck

infrastructure deals with investment contracts where companies take a slice of

profits.

Another official involved in the talks said Exxon’s

production-sharing model included a proposal to sell some Iraqi crude itself,

rather then through the state oil marketer SOMO, a plan the government strongly

rejected.

POLARIZING OIL DEAL

Relations between Washington and Tehran have deteriorated

since US President Donald Trump withdrew last year from a 2015 nuclear deal

between Iran and world powers agreed by his predecessor Barack Obama, and

reimposed and extended sanctions.

The complications facing the Exxon deal have come against

the backdrop of a rapid escalation in recent weeks, with Tehran rejecting

accusations by Washington it was behind attacks on oil tankers and facilities

in the Gulf.

Tensions reached further heights this week when Iran shot

down a US military drone that it said was on a spy mission over its territory,

an incident that fanned fears of wider military conflict in the Middle East.

Trump said on Thursday that Iran had made “a very big mistake”.

In a sign of the frustrations felt by Baghdad, Iraqi Oil

Minister Thamer Ghadhban said in May that Exxon’s decision to evacuate all its

foreign staff from the country then was “unacceptable and unjustified”.

He said it was a political move rather than a genuine

security precaution, without elaborating, and that it had hampered the

dealmaking.

“Now they are out of the country, why should I run after

them?” he said at the time.

Exxon did not comment on Ghadhban’s characterization of its

temporary evacuation of Basra staff as “political”.

The US State Department did not immediately respond to a

request for comment on whether US Iran policy might have affected the deal.

The tussle for influence in Iraq between Washington and

Tehran is reflected in Iraqi politics, with the proposed $53 billion deal a

polarizing issue.

Basma Baseem, an Iraqi lawmaker and a member of the

parliament energy committee said Iraq should push forward with the deal with

Exxon to help Iraq develop its energy sector.

“It’s a major company with billions of dollar of assets and

investments across the world and a cutting edge expertise in the oil industry,”

she added. “Iraq can benefit significantly from this large deal.”

However politicians from Iran-aligned Shiite Muslim parties

portray the deal as extortion, calling it “a new occupation” by the United

States.

“The government is under a lot of pressure from the

Americans to sign long-term energy and power deals,” said lawmaker Kareem Alewi

of the Iranian-backed Badr Organization, one of the Iraqi parliament’s two

biggest groupings.

“This is a trick to control our economy.”





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