Iraqi Oil: Resource Curse or Glorious Blessing?

Moreover, when the contract for WQ1 was finalised, ExxonMobil and Shell were the first IOCs who benefitted from the “first right” provision in the service contract by including the discovered, undeveloped formations of Yamama, Khasib, S’adi and a few smaller reservoirs to their contract. This had added 0.5 mbd, for a $2/b remuneration fee (RF) bringing WQ1 PPT to 2.850 mbd with a RF weighted average of $1.92/b. Finally, the Ministry favoured ExxonMobil to lead the project for the Common Seawater Supply Facility (CSSF), for the water injection needs of the southern oilfields.

The ExxonMobil’ WQ1 contract says clearly that  the “Iraqi Government has sole right to explore, develop, extract, exploit and utilize such natural resource.” The said contract is governed by the “Law,” broadly defined to mean “any constitution, law, decree, resolution, statute, ordinance, rule, directive, order, treaty, code or regulation and any injunction or final non-appealable judgment, as adopted, enacted, issued, promulgated or ratified by the Republic of Iraq.” Finally, credible senior source assets, “Before they signed the contract [with KRG], 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.”

Obviously, ExxonMobil disregards all the above and thus many inside and outside the ministry who favoured ExxonMobil must have felt betrayed by this company when it signed the KRG deals, and even provoked to know that some of the blocks are within the so-called “disputed areas,” which is a very sensitive issue between the federal and KR governments.

So far ExxonMobil have been excluded from participating in the fourth bid rounds of 30 May 2012 (which could be a non-issue for ExxonMobil anyway) and removed from the CSSF project. But many in the country are forcefully calling the government to take a tougher and more decisive stand against the company on three matters: 1-terminate their interest in WQ1; 2-remove it from the state oil marketing company’s buyers list of Iraqi crude, and 3, blacklist the company from any future deals within and outside the petroleum sector. These measures require thorough and careful consideration. However, the first matter could eventually be settled through international arbitration. The second could be done by a gradual monthly cutting-off in crude sales to arrive at zero sales within a specified period. But this measure has to be applied to other blacklisted companies such as SK Energy (of South Korea), Spanish Repsol and of course Total and Gazprom. The longer the list of blacklisted companies the more difficult it becomes for Baghdad to pursue this option. The third measure has already been implemented and could be implemented immediately.

 

As for Chevron, the company was unsuccessful in securing any deal out of the four bid rounds. Also, its talks with the ministry to develop the giant Nassiriya oil field in southern Iraq had obviously failed. All the government could do is to apply the last two measures mentioned above for ExxonMobil.Finally, while we see the role of the American IOCs decline in the Iraqi petroleum sector (due to their own mistakes)  the Russians (except Gazprom) and Chinese companies are consolidating theirs.

RT: Here are two views of Hussein al-Shahristani:

1) He auctioned off Iraq’s huge oil fields too quickly, and should have been tougher when bargaining with the International Oil Companies, so Iraq got a bad deal. Iraq did not need international companies to develop its oil fields, except maybe some service contracts.

2) He acted quickly at a time when politics in Iraq was moving very slowly. Iraq could not spend years debating what to do about the future of its oil industry, because then it would be too late. Iraq has benefited from the international companies. Do you agree with view 1 or 2, or is the answer somewhere in the middle?


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