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Exxon Mobil becomes first supermajor to sign deal with Kurdistan

November 11, 2011

The central government of Iraq has a fractious relationship with the semi-autonomous Kurdistan region to the north, so much so that the central government forbids any oil company doing business in the south and central regions from also doing business in Kurdistan.

Exxon Mobil has a very large contract developing the West Qurna field in Basra.  The West Qurna field is highly productive, delivering over 2.8 million barrels per day.  Nonetheless, ExxonMobil has chosen to risk losing that contract by signing a huge deal with the Kurdistan government to explore and develop six large oil blocks in the northern region.

So, the question is:  does Exxon Mobil believe the potential of these blocks are greater than the highly productive field that the Iraqi government is poised to take away, or do they believe that the central government will back down and allow them to keep both that contract and the Kurdistani deals?

The ramifications here are huge.  Due to years of poor governance under the Hussein regime and the near-decade long period of war and insurrection that begin with the US invasion in 2003, Iraq’s oil potential has never been systematically explored.   Although it’s proven reserves are already among the largest in the world, only about 20% of the known fields have been developed.  It is conceivable that, once a full exploration and development regime is instituted, Iraq could have more oil than even Saudi Arabia.  At the end of the day, this is what will make the US invasion of Iraq worthwhile – not US firms getting the oil, but any firm or combination of firms that is able to unleash that potential and pump that oil onto the world market would deliver instant price relief around the globe.

There are still important issues to resolve – the aforementioned relationship between Kurdistan and the central government, settling on a hydrocarbon law, and developing export capacity (which already bottlenecks even current production levels).  But, this announcement is a big development in getting Iraq’s oil capacity flowing.

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