Oil Ministry: Chevron Barred from Deals in Central, Southern Iraq

Oil Ministry: Chevron Barred from Deals in Central, Southern Iraq

The second largest U.S. energy company Chevron Corp. will be barred from contracts in central and southern Iraq because the Californian company bought stakes in two oil-exploration blocks in the Kurdish region of Iraq, an Iraqi oil ministry statement said Tuesday.

Chevron is the second major western oil company to be banned by the central government in Baghdad from any future deals in the country's lucrative oil and gas sector, following Exxon Mobil Corp. last year.

Chevron last week signed a deal with Indian conglomerate Reliance Industries Ltd. buying the majority stakes in two Kurdish blocks.

The Iraqi government move comes as it struggles to assert its authority over energy deals struck within its borders amid a continued lack of legislation for the sector. The central government in Baghdad considers as invalid any deals signed with the Kurdistan Regional Government, or KRG, which in turn states that all and any deals it has signed comply with the country's new constitution.

"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," the oil ministry statement said.

Chevron has prequalified to bid for oil licenses in central and southern Iraq, but the oil ministry's statement said that it has terminated its prequalification.

According to the deal, Chevron would have 80% of the oil licenses in question, known as Rovi and Sarta, joining with OMV Rovi GmbH and OMV Sarta GmbH, which hold the remaining 20%.

Chevron's move may further escalate already high tensions between Baghdad and Kurdistan. A long-standing dispute over the level of payments from the central government to companies operating in the Kurdish region, for oil they have produced and exported, also remains unresolved.

In April the KRG halted the export of nearly 100,000 barrels a day via a Baghdad pipeline to Turkey arguing that the central government is delaying the payment of some $1.5 billion to contracting companies.

Iraq's federal deputy prime minister Hussein al-Shahristani said recently that some $8.5 billion was lost because the KRG halted exports for periods in 2010, 2011 and 2012. Mr. Shahristani has called on the government to deduct that money from the national budget allocation to Kurdistan.

Last week, Baghdad accused Turkey and the Kurdish region of engaging in illegal oil trade, arguing that only the central government has the right to control oil exports from Iraq.

Baghdad has already blacklisted companies that maintain deals with the Kurds, excluding them from working elsewhere in Iraq. Among those is New York, N.Y.-based Hess Corp. (HES), which was barred last year from competing in the fourth energy auction. Exxon Mobil was also banned from the same auction.

However, international oil firms are increasingly drawn to the region, as contracts to redevelop old oil fields and explore for new ones in southern Iraq turn out to be less attractive than anticipated.

Kurdistan has signed nearly 50 exploration deals, mostly with second-tier international oil companies or wildcat explorers. Baghdad maintains all these contracts are illegal.

Copyright (c) 2012 Dow Jones & Company, Inc.


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