x Abu Dhabi, UAEWednesday 26 July 2017

Baghdad flexes muscles to bar Chevron over Kurdish oil deal

Baghdad has barred the US oil company Chevron from bidding for Iraq government contracts after the super-major bought into the Kurdish autonomous region's oil sector.

Baghdad has barred the US oil company Chevron from bidding for Iraq government contracts after the super-major bought into the Kurdish autonomous region's oil sector.

Chevron last week acquired an 80 per cent stake in two Kurdish oil fields from India's Reliance Industries. It followed a similar move by ExxonMobil - the world's biggest oil company by market capitalisation -which bought the rights to six fields in November.

The Iraqi government considers contracts signed with the Kurdish Regional Government (KRG) as illegal and has blacklisted companies already active in Kurdistan, including Exxon. "Chevron is barred from any agreement or contract with the federal ministry of oil and its companies …unless it retreats from the contract it signed in Kurdistan region," Iraq's oil ministry said yesterday.

Chevron had been prequalified to bid for oil licences in central and southern Iraq but the oil ministry said it had terminated its prequalification. The response was widely expected.

"They went into it with their eyes wide open," said Sam Ciszuk, an analyst at KBC Energy Economics.

The defiance of Baghdad by the two largest US oil companies shows their irritation at what they see as onerous terms imposed by the oil ministry. The companies producing in Iraq are unhappy with the payment terms in their contracts and the fact that original targets to increase capacity are revised.

At the last auction held by the oil ministry, only two of the 12 blocks on offer were sold and none of the big international oil companies took up licences. "They clearly weighted the risk and opportunities and chose Iraqi Kurdistan," said Mr Ciszuk about Chevron. "There is a better investment framework in Kurdistan."

The region is already host to a wide range of small and mid-sized oil and gas companies. Among them are Norway's DNO, which is merged with RAK Petroleum, and OMV, an Austrian firm part-owned by Abu Dhabi's International Petroleum Investment Company. Dana Gas, based in Sharjah, is also heavily invested in the KRG.

The entry of the big players is a positive development for the smaller producers, analysts say. Access to finance is expected to improve as Kurdistan is seen as a safer investment. "It gives financial respectability to the oil region and it creates a good momentum for deal-making and[mergers and acquisitions]," said Mr Ciszuk.

fneuhof@thenational.ae

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