Iraq's government has warned the French oil giant Total against a move into the autonomous region of Kurdistan, after the head of the oil company admitted his interest in the region.
The oil ministry in Baghdad has a policy of blacklisting companies that sign exploration and production contracts with the Kurdish Regional Government (KRG), contracts it does not see as legitimate.
"Any such contract has no standing with the Iraqi government, and the companies have no right to work on the Iraqi territories and they bear the full consequences," Hussain Al Shahristani, Iraq's deputy prime minister for energy, told Reuters yesterday.
Total could become the next oil major that defies Baghdad to tap oil resources in the semi-autonomous region of Kurdistan, as international oil companies have become disgruntled with the contracts in southern Iraq.
Total last week expressed interest exploring the region, which holds as much as 40 per cent of Iraq's proven oil reserves, and the news service Platts has quoted sources in Kurdistan who claim that the French company has already entered an agreement with the KRG to work on six blocks that have been relinquished by the smaller companies Petoil and ShamAran.
A spokesperson for Total in the UAE declined to comment.
Last week, Christophe de Margerie, the chief executive of Total, told reporters in Paris that the company was looking to see if there were any "interesting" blocks to explore.
"It's a place where there are important oil and gas reserves and contracts are better" than in the rest of Iraq, he said.
"The position of the Iraqi government will be the same as with the other oil companies, that no company has a right to sign a contract without the approval of the central government of Iraq," Mr Shahristani countered in Basra yesterday.
Mr De Margerie followed up his praise for KRG conditions with criticism of the upcoming fourth licensing round for concessions in the south.
"The reward for investment doesn't appear for the moment to be enough," he said.
Baghdad plans to auction 12 exploration areas, seven for oil and five for gas. But international oil companies already producing in the south, including Total, have been faced with low returns under the technical services contracts they signed to enter Iraq.
Excessive bureaucracy, delays in tenders and contracts and an unsteady security situation have eaten into margins, experts said.
"It has made [the] service contract regime quite challenging. They are workable under smooth circumstances, but not under those situations," said Luay Al Khatteeb, the executive director of the Iraq Energy Institute.
"It has pushed companies to think again whether the fourth licensing round is going to be as lucrative as they may wish."
ExxonMobil, the world's largest oil company, became the first oil major active in Iraq that defied a blacklisting policy by the oil ministry, which has in the past excluded companies that entered Kurdistan from licensing rounds in the south.
The gamble appeared to have paid off as there are no indications that ExxonMobil will be excluded in the upcoming auction.
Kurdistan, where companies work under more generous production sharing agreements, will remain a target for companies active in the south of Iraq, says Mr Khatteeb.
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