July 24, 2012 5:52 pm

Iraq bans Chevron over Kurdistan deal

Chevron has been banned from bidding for exploration licences by Iraq’s federal government following its acquisition of oil interests in the semi-autonomous Kurdistan region of the country last week.

In a statement, Iraq’s oil ministry said Chevron’s investment in the Kurdistan region of Iraq was “illegal and illegitimate” as it announced “the disqualification of Chevron company” from doing business in the south and centre of the country and barred it “from signing any deals with the federal oil ministry and its companies”.

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The move follows a protracted stand-off between Iraq’s federal government in Baghdad and the government in the Kurdish sector of northern Iraq over the control of oil production and exports from the region.

Chevron, the second-largest US oil group by market capitalisation, announced last Thursday that it was acquiring 80 per cent stakes and operational control of two blocks north of Erbil in Iraq’s Kurdish region from Reliance of India. OMV of Austria remains a junior partner in the fields.

A decision by the US major to risk a backlash from Baghdad comes eight months after US rival ExxonMobil revealed it had become the first of the “supermajor” oil companies to sign contracts with the Kurdistan Regional Government to explore for oil and gas in the sector.

Concerns over the legality of deals struck directly with the KRG government and disputed by Baghdad, alongside the federal government’s control of the pipeline network largely used for the exporting of Iraqi oil, has prompted most major oil companies to avoid buying potentially “stranded” assets in the region.

But Exxon’s move into Kurdistan has challenged the assumption that Baghdad can hold the line against the growing list of exploration companies willing to dealing direct with the KRG despite the threat of exclusion from the rest of the country.

Two auctions held in recent weeks by the federal government for blocks in Iraq’s oil-rich southern province attracted limited interest from foreign oil companies.

Plans backed by the KRG for the construction of a direct pipeline to Turkey that would circumvent Baghdad’s control over exports from the Kurdistan region have been attacked as “hostile” by the Iraqi government.

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