RE: http://www.businessweek.com/news/2011-11-14/exNov. 14 (Bloomberg) -- Exxon Mobil Corp. Chief Executive Officer RexTillerson is playing catch-up with a former rival, ex-BP Plc CEO TonyHayward, in a race to tap oil riches in Iraq’s Kurdish region that dwarfthe deep-water Gulf of Mexico.
Exxon, the world’s largest company by marketvalue, signed a contract to drill for crude in the Kurdish-controllednorth of the country on Oct. 18, Ashti Hawrami, the natural resourcesminister for the Kurdistan Regional Government, said yesterday during anoil conference in Erbil, Iraq. Hayward’s Vallares Plc has a six-weekhead start with its $2.1 billion agreement in September to acquireTurkey-based Genel Energy Plc, the biggest oil producer in Kurdistan.
Home to about 40 percent of the Iraqi nation’s115 billion barrels of reserves, Kurdistan has attracted keen interestfrom small- and mid-sized foreign explorers since the fall of SaddamHussein in 2003 opened the region for the first time in decades. Thebiggest international producers such as Exxon had steered clear ofKurdistan to avoid getting in the middle of a long- standing disputebetween Iraq and Kurdish leaders over how to divide oil revenue.
Iraq’s central government said it’s settled thedispute with an agreement that would open the door to international oilcompanies operating in the Kurdish region without penalty from Iraq,according to a Nov. 12 report by Radio Free Europe/Radio Liberty, theU.S. government-funded news outlet.
Expanding Production
Tillerson has been expanding Exxon’s holdingsfrom the Russian Arctic to the Texas-Mexico border to reverse aproduction shortfall that saw third-quarter output drop the most inthree years. The company’s willingness to sign a contract with Kurdishauthorities may presage a flood of investment and acquisitions not onlyin the northern region but all over Iraq as perceptions of political andsecurity risks diminish, said Gianna Bern, president of BrookshireAdvisory & Research Inc., a Chicago-based risk-management adviser tothe energy industry.
“Iraq is open for business,” Bern said. “If Exxoncan advance its efforts in Iraq, then opportunities for all the majoroil companies to invest are going to increase significantly over thenext several years.”
Kurdish authorities have offered internationaloil producers more profitable terms than those given by Iraq’s centralgovernment. In Kurdistan, foreign explorers are granted a share of theoil pumped from each well. That’s a richer prospect than the servicecontracts with Iraq’s government for developing southern oilfields,which give foreign companies pre- set fees of as little as $1.90 abarrel.
Tensions with Iraq
Exxon riled some members of the Iraqi governmentby signing its exploration contract with Kurdish leaders before the oil-sharing agreement with Iraq had been finalized. After Exxon’s contractwas reported Nov. 11, Abdul-Mahdy al-Ameedi, head of licensing at theIraqi central government’s Oil Ministry, threatened to cancel thecompany’s existing contracts to extract oil in Iraq’s southern fields.
A day later, Adal Barwari, Prime Minister NouriKamil al- Maliki’s adviser on Kurdish affairs, told Radio FreeEurope/Radio Liberty that the central government and the Kurds reached“mutually acceptable” solutions to long-standing disagreements over oil,territory and Kurdish armed forces.
Alan Jeffers, a spokesman for Irving, Texas-based Exxon, declined to comment yesterday in an e-mailed statement.
Hayward’s Kurdish Plan
Hayward, forced out of London-based BP last yearafter the Deepwater Horizon disaster that killed 11 rig workers andspilled more than 4 million barrels of crude in the Gulf, plans to spendabout $725 million to develop Genel’s six Kurdish fields. An equalamount will be devoted to buying up some of the 41 companies drillingfor crude and natural gas in the Kurdish region, Hayward said during aSept. 8 meeting with reporters in Istanbul.
“We will be participating in the inevitableconsolidation among the 41 companies in the Kurdish region,” he said.“We want to have the dominant position in the region by building abigger company.”
Vallares, a so-called blank-check company foundedby Hayward, financier Nathaniel Rothschild and banker Julian Metherell,said in a Nov. 3 statement that it plans to change its name to GenelEnergy Plc, pending approval by shareholders.
Kurdistan holds as much as 45 billion barrels incrude reserves, Hawrami said in September. That’s more than double the20.4 billion barrels of crude the U.S. Energy Department estimates laybeneath the sea floor in the deep-water Gulf of Mexico.
Unexploited ‘Vast’ Reserves
Iraqi oil production surged to a 9-year high of2.73 million barrels a day in September, according to data compiled byBloomberg. Output fell 2.7 percent to 2.655 million barrels a day lastmonth after attacks on pipelines in the southern part of the countrydisrupted transport.
“Iraq may be one of the few places left wherevast oil reserves have barely been exploited,” the U.S. EnergyDepartment’s Energy Information Administration said in a 2010 report onits website.
Tillerson, a University of Texas-trainedengineer, is spending $37 billion this year to drill wells, constructgas- export terminals and expand oil refineries as he seeks new sourcesof growth for Exxon. In the past year-and-a-half, Tillerson signed a$3.2 billion deal with Russia’s OAO Rosneft to explore the Black Sea andKara Sea for crude, and devoted another $40 billion to acqusitions ingas-rich U.S. shale formations.
‘Binding Contract’
So far, Exxon has been mum about its plans for Kurdistan, refusing even to confirm the existence of an agreement.
“It’s a binding contract,” Hawrami told reportersyesterday at the Kurdistan-Iraq Oil and Gas Conference in the regionalcapital city Erbil.
The agreement entitles Exxon to explore sixblocks, including Al Qush, Bashiqa, Tirman, Betwata, Qurna-Hanjeer and asixth area along the border with Iran, he said. Hawrami didn’t discloseany details about how much Exxon has pledged to spend on seismicmapping, exploratory drilling or training local residents to work in theoilfields.
“Iraq is considered a frontier region in the oilindustry,” said Brookshire Advisory’s Bern, a former BP crude trader andauthor of ‘Investing in Energy: A Primer on the Economics of the EnergyIndustry. (2011)’ “It’s still a risky place to operate but if Exxon canadvance its efforts there, it’ll be a pretty significant feather in itscap.”