Oil giant ExxonMobil has signed a deal with Iraqi Kurdistan, possibly jeopardising its contract for the giant West Qurna-1 field in southern Iraq, an Iraqi oil ministry official said on Friday.
"Yes, ExxonMobil signed a contract," said Abdelmahdi al-Amidi, director general of the oil ministry's petroleum contracting and licensing directorate, citing an adviser in the Kurdistan ministry of natural resources.
Asked if the deal with Kurdistan would mean Exxon could lose its contract for the West Qurna-1 field, Amidi said the company "must lose it."
Baghdad regards any oil contracts not signed with the central government as invalid. Amidi did not provide additional details about the deal.
According to an oil ministry source, the Kurdistan Regional Government (KRG) a few weeks ago gave Exxon 48 hours to make a decision on investing in an oil field in the region.
Exxon asked the Iraqi government for authorisation to sign the deal, said the source, who spoke on condition of anonymity.
But Hussein al-Shahristani, the deputy prime minister for energy affairs, demanded that the ministry send a letter to Exxon saying Iraq's oil belongs to all Iraqis, and that companies wanting to work in the country must sign contracts with the Iraqi government only, said the source.
Shahristani also asked the ministry to tell Exxon that it would lose its existing contract with the Iraqi government if it signed a deal with Kurdistan.
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Shahristani met with an Exxon representative last week, the source said, but the results of that meeting are not known.
A source in the Kurdistan ministry of natural resources said the deal with Exxon was signed in London.
ExxonMobil would not comment on the agreement when contacted by AFP.
The Kurdistan Regional Government (KRG) also posted a Financial Times article about the deal on its website.
"The KRG has for the last few months been in discussions with a number of major oil companies. This resulted in the recent signing by ExxonMobil of contracts to explore in six blocks," the article quoted Michael Howard, an adviser to the KRG, as saying.
It is a ground-breaking deal, Ruba Husari, the editor of the Iraq Oil Forum, told AFP.
"For the first time, a company -- and not just any company but a major -- decided to break the red line of signing a contract that is not recognised by the federal government as legitimate after it has obtained a major one from Baghdad," Husari.
She estimated that Exxon took the contract because "what it was offered was a production-sharing contract (PSC) that is a lot more lucrative" than the service contract it had signed with Baghdad.
In January 2010, the Iraqi oil ministry completed the deal with ExxonMobil and Anglo-Dutch giant Shell to develop production at West Qurna-1, which has reserves of around 8.5 billion barrels and is the country's second-biggest field.