«The mechanism of production sharing» impede the oil agreement for «Exxon» in Iraq

Just weeks ago, the US energy giant ExxonMobil appeared to be moving ahead with a $ 53 billion project to boost Iraq's oil production in its southern fields, an important step for the company's ambition to expand the country. But according to government officials in Iraq,

But according to government officials in Iraq, a combination of contractual wrangling and security concerns, fueled by escalating tensions between neighboring Iran and the United States, is now hampering the deal.

Four Iraqi officials involved in the talks said negotiations had been stalled by clauses of a contract opposed by Baghdad. They said the main sticking point was the ways Exxon proposed to recover its development costs, with the company targeting to share oil produced from two fields, which Iraq rejects, saying it was an infringement on state ownership of production.

Current items

An Iraqi negotiator said Baghdad would not sign anything on the current items proposed by Exxon. Exxon declined to comment on the terms of the contract or negotiations. "In terms of habit, we do not comment on trade talks," a Texas-based company spokeswoman said.

"The talks are ongoing and we expect an agreement to be signed soon," said Fayyad Naima, undersecretary of the Iraqi Ministry of Oil for upstream activities.

Negotiations have also been hampered by separate operations to evacuate Exxon staff from Iraq as a result of mounting regional tensions between the United States and Iran.

The first evacuation was in May after hundreds of US embassy staff left for Washington because of unspecified security concerns from Iran. The second evacuation came last week, after a rocket attack believed to have targeted the company, in which Iraqi officials blamed armed factions backed by Iran.

Foreign companies

"Exxon withdrew its employees from Iraq in response to the turmoil in the region," said an Iraqi oil official who oversees the operations of foreign companies in the south. The question is, how will they run a $ 53 billion project with regional instability continuing? " "They may be abandoning work again, which could damage our energy sector," he said.

Iraq is the second-largest oil exporter in the Organization of the Petroleum Exporting Countries (OPEC), and aims in the long term to strengthen its production, which was stopped by years of war and sanctions. These projects are among the world's most valuable prizes for international oil companies.

And the conclusion of an initial agreement that would strengthen Exxon's expansion plans in Iraq. Under the deal, Exxon will build a water treatment plant and pipeline to boost oil production capacity, and develop rights to at least two oilfields in the south, the Ben Omar and Artawi rivers.

Discuss the agreement

In May, US Secretary of State Mike Pompeo discussed an agreement with Iraqi Prime Minister Adel Abdul Mahdi in a three-day telephone call and a surprise visit to Baghdad, another Iraqi government official said.

Abdulmahdi said last month that Iraq was close to signing the $ 53 billion energy deal for 30 years with Exxon, which leads the project and its partner in the PetroChina deal. But officials said differences between the two sides may be blocked until a tentative agreement is reached soon.

Exxon is proposing a production sharing agreement to restore its own development costs by sharing the production of the Ben Omar and Artawi fields with the government. But Iraq has largely rejected these contracts. Over the past 10 years, it has favored so-called service contracts, with companies receiving fixed dollar fees per barrel.

"We informed them that we totally reject any mechanism for sharing production, as they are contrary to the government's policy for the energy sector," said an official in the negotiating team.

The official said it was too early to say what kind of contracts Iraq preferred. In the past, Baghdad also signed infrastructure agreements with investment contracts in which the companies received a share of profits.

Another official involved in the talks said Exxon's production sharing model included a proposal to sell itself some Iraqi oil instead of selling it through the Iraqi oil marketing company Sumo, a plan the government strongly rejects.

- Negotiations faltered

Due to contract items

Opposed by Baghdad.

- Iraq rejected a proposal

«Exxon» sharing

Oil Product

Of two fields.

- The agreement grants the company

Field development rights

«River Ben Omar»

And «Artawi».

The government strongly rejects it.