U.S. oil giant Chevron said on Thursday it signed a deal with Iraqi Kurds to explore for oil in their northern region, defying the central government which wants to control the area’s oil wealth.
The agreement makes Chevron the second U.S. company to secure oil deals with Kurds in conflict with Baghdad, after Exxon Mobil Corp. agreed last October to explore for oil in six areas.
Baghdad wants to manage its energy resources nationwide and have the final say on all oil and gas deals. Kurds argue that the constitution allows them to draw up development plans independently and award deals without going through the oil ministry.
Chevron, based in California, said in a statement it will take over India’s Reliance Exploration and Production efforts to explore for oil in the Rovi and Sarta blocks. Chevron will hold 80 percent of the contract while Austria’s OMV AG will hold the rest.
The blocks are located north of the regional capital, Irbil, and cover a combined area of approximately 1,124 square kilometers (490 square miles).
Since the 2003 U.S.-led invasion, the Kurds have signed over 50 relatively small deals — production sharing contracts with small and mid-sized oil companies. But the entry of majors Exxon Mobil and now Chevron may be a game changer that could lead to de facto policies the Kurds have long sought.
Iraq’s post-invasion governments have until recently blacklisted energy companies that signed contracts with the Kurdish government to prevent them from working elsewhere in the country or purchase crude oil.
But in the case of Exxon Mobil, the Iraqi government has had a light hand. It prevented it from taking part in Iraq’s fourth energy bidding round in May but has not touched its deal to develop the 8.6 billion West Qurna field near the southern city of Basra along with Royal Dutch Shell PLC.
Chevron has no deals with Baghdad government. Officials in Baghdad and Irbil could not immediately be reached for comment.
Unlike the lucrative contracts the Kurds offer, which allow the developers to claim a share in reserves and produced oil, Iraq’s central government offers only a flat service fee for each barrel extracted from wells.
Iraq has been struggling to develop its oil and gas reserves after years of war, international sanctions and neglect. Foreign companies with the resources and expertise to develop the oil fields, such as Exxon Mobil, are seen as key to helping revive the nation’s vital energy sector.
Since 2008, Iraq has awarded 15 oil and gas deals to international energy companies, the first major investments in the country’s energy industry in more than three decades.
The original goal was to boost daily production from about 3 million barrels now to 12 million barrels by 2017. That may be revised downward to fewer than 10 million barrels however, given infrastructure bottlenecks and a possible falloff in demand on international markets.