February 27, 2012 / 12:18 PM / 6 years ago

Exxon breaks silence over Kurdistan oil talks

LONDON (Reuters) - Exxon Mobil (XOM.N) has disclosed its plans to explore for oil in Iraq’s Kurdistan in the company’s annual report, breaking months of silence over the investment that has outraged Baghdad.

A view of the Exxon Mobil refinery in Baytown, Texas September 15, 2008. REUTERS/Jessica Rinaldi

While the Kurdistan Regional Government (KRG) in November trumpeted the deal for six exploration blocs, Exxon - the first major oil company to invest in northern Iraq - had steadfastly declined to comment since.

The KRG said the production sharing contract with Exxon was signed on October 18, 2011.

“Exploration and production activities in the Kurdistan region of Iraq are governed by production-sharing contracts negotiated with the regional government of Kurdistan in 2011,” said Exxon’s annual report, filed on February 24.

“The exploration term is for five years with the possibility of two-year extensions. The production period is 20 years with the right to extend for five years.”

The Exxon report did not go as far as to say the Kurdish negotiations had been finalized.

The U.S. major’s foray into Kurdistan infuriated the central government, which has long held that all foreign oil deals signed with the KRG are illegal.

The central government initially threatened to cancel Exxon’s service contract for the supergiant West Qurna-1 oilfield in southern Iraq.

But at the end of January, Baghdad told Exxon it could keep working at West Qurna provided it froze its plan with Kurdistan.

Industry sources say the company has no such intention and that it continues to press ahead quietly in Arbil.

The central government, in any case, cannot take action against Exxon over its Kurdistan bloc deal until Baghdad drafts a formal legal response, Iraqi oil officials have said.

The Ministry of Oil has, however, stripped Exxon of its role as project leader for a multi-billion-dollar water injection scheme that is core to the development of Iraq’s oilfields in the south. Iraqi officials said the move was not in retaliation for Exxon’s involvement with the KRG.

Otherwise, it is business as usual for Exxon at West Qurna-1, where production has risen to about 390,000 barrels per day from 244,000 bpd when Exxon and minority partner Royal Dutch Shell (RDSa.L) signed up the contract in March 2010.

By the end of last year, the pair had spent $911 million on the project which targets output of 2.825 million bpd by 2017, a senior Iraqi oil official said this month. Baghdad had repaid the companies $470 million.

Iraq signed a series of deals with international oil firms such as Exxon to boost its output capacity to 12 million bpd by 2017 from about 2.9 million bpd now. But it may eventually lower the target due to infrastructure constraints.

Editing by Jason Neely

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