- Iraq has persuaded Lukoil to stop selling Sinopec sources
- Baghdad was worried that China would become too dominant, sources said
- Western companies are unhappy with the terms of the Iraq deal
LONDON / BASRA, May 17 (Reuters) – Iraq’s oil ministry thwarted three future deals last year that would give Chinese companies more control over its oil fields and lead to the eviction of large international oil companies that Baghdad wants. to invest in its squeaky economy.
From the beginning of 2021, the plans of the Russian Lukoil (LKOH.MM) and the American oil company Exxon Mobil (XOM.N) to sell shares in large fields to Chinese companies supported by the state have hit the buffers after the intervention of the Iraqi Ministry of Oil, according to to Iraqi oil officials and industry leaders.
Selling a stake in a state-owned Chinese company was also one of several options being considered by Britain’s BP (BP.L), but officials persuaded it to stay in Iraq for now, insiders said.
Register now for FREE unlimited access to Reuters.com
I’m registering
China is the largest investor in Iraq, and Baghdad was the biggest beneficiary last year of Beijing’s One Belt, One Road initiative, receiving $ 10.5 billion in funding for infrastructure projects, including a power plant and an airport.
But when it comes to further Chinese investment in large oil fields, Baghdad is drawing a line in the sand.
Iraqi government and state-owned companies are concerned that further consolidation of deposits in the hands of Chinese companies could accelerate the eviction of Western oil companies, a total of seven Iraqi oil officials and company executives in Iraq said in an interview with Reuters. .
Supported by state oil company officials, Iraqi Oil Minister Ihsan Abdul Jabar dissuaded Lukoil from selling a stake in one of the country’s largest fields, West Qurna 2, to China’s state-owned Sinopec last year, three people familiar with the matter said. .
Iraqi officials also intervened last year to stop Chinese state-owned companies from buying Exxon’s stake in West Qurna 1 and persuading BP (BP.L) to stay in Iraq instead of shifting its interest to the Chinese company’s giant Rumayla oil field. , people familiar with the said case.
United, Rumaila and West Qurna produce about half of Iraq’s crude oil, the world’s fifth-largest oil reserve.
The Iraqi Ministry of Oil has not responded to requests for comment on the deals or the minister’s role in any interventions.
The government is worried that China’s rule could make Iraq less attractive for investment than elsewhere, two government officials said.
Strengthening China’s relations with Iran has helped its position in Iraq due to Tehran’s political and military influence there, but the oil ministry fears giving up more control over the country’s key resources, some officials said.
“We do not want the Iraqi energy sector to be labeled as a China-led energy sector, and this attitude has been agreed upon by the government and the oil ministry,” said another Iraqi official.
RISKY STRATEGY
Interventions on the positions of BP, Exxon and Lukoil in Iraq came after the British oil company Shell (SHEL.L) decided in 2018 to withdraw from the huge oil field in Iraq Minun.
The interventions also marked a change in position after Chinese companies won most of the energy deals and contracts awarded in the last four years. Iraqi oil officials said Chinese companies have adopted lower profit margins than most competitors.
“All tender rules were formulated jointly by China and Iraq and were conducted in a transparent and fair manner,” the state-owned China National Offshore Oil Corporation (CNOOC) (0883.HK) said in a statement.
However, repelling additional Chinese investment is a risky strategy, as there is no guarantee that others will step up and the government needs billions of dollars to rebuild the economy after the Islamic State uprising was defeated in 2017.
Over the past decade, oil revenues have accounted for 99 percent of Iraq’s exports, 85 percent of the country’s budget and 42 percent of its gross domestic product, according to the World Bank.
As oil companies struggled to gain access to Iraq’s vast oil fields after the US-led invasion in 2003, they are increasingly focusing on the energy transition and more lucrative games elsewhere. They also want better conditions for field development, oil officials said.
China is one of Iraq’s biggest buyers of crude oil, and Chinese state-owned companies have built a dominant position in its oil industry.
But when Lukoil informed the government last summer that it was considering selling part of its stake in West Qurna 2 to Sinopec, the oil minister intervened, insiders said.
Earlier, it was not reported that Sinopec was the potential buyer of Lukoil’s stake. The Chinese company did not respond to a request for comment.
To encourage Lukoil to stay, Iraq offered a sweetener, said a man with direct knowledge.
A few months after Lukoil announced it was considering a sale, Baghdad finally approved its plan to develop a field known as Block 10, where the Russian company discovered an oil tank in 2017. Lukoil then dropped the idea of selling its stake. in West Qurna 2, the source said.
Lukoil did not respond to a request for comment.
BP AND EXXON
Over the past few years, BP has also been talking to the government about its options – including leaving Iraq altogether – before deciding to split its stake in Rumaila into a stand-alone company last year, two people familiar with the matter said.
Oil Minister Abdul Jabar is leading efforts to persuade BP not to leave, as the government was worried that its partner in the field, China’s National Petroleum Corporation (CNPC), would buy BP’s stake, people said. They said Baghdad was also seeking to maintain such a high-ranking international oil company in the country.
BP declined to comment.
Meanwhile, when Exxon announced its intention to leave Iraq in January 2021, US officials told Exxon they were unhappy with the prospect of withdrawing the largest US oil company – for reasons that reflect Iraq’s concerns.
State Department officials said leaving Exxon could create a vacuum for Chinese companies to fill, said a person familiar with the talks.
U.S. officials then asked Exxon what it would take to stay in Iraq, the man said, declining to give further details.
A State Department spokesman said: “We are regularly committed to our Iraqi counterparts to promote an environment conducive to private sector investment.”
Exxon has signed an agreement to sell its stake in West Qurna 1 to CNOOC and PetroChina (601857.SS), a registered division of CNPC, officials said.
Neither CNOOC nor CNPC responded to requests for comment on the transactions.
Exxon’s stake was estimated at $ 350 million to $ 375 million, insiders said.
However, Iraq has a veto over oil deals and has not approved the deal.
Exxon has filed an arbitration petition with the International Chamber of Commerce against Basra Oil Co., arguing that it has complied with the terms of its contract for West Qurna 1 and has a good deal, insiders said.
The oil ministry then took the unusual step of trying to mediate a deal on Exxon’s behalf. The ministry offered Exxon’s stake to other Western companies, including Chevron Corp. (CVX.N).
Nobody cared. Instead of leaving the stake to Chinese companies, Baghdad said the state-run Iraqi National Oil Company (INOC) would take it instead, although the INOC is still in the process of reviving after not existing for many years.
“(Exxon) will continue to work closely and constructively to reach a fair solution,” a spokeswoman said.
SERVICE AGREEMENTS
The Iraqi oil industry is based primarily on technical service contracts between the state-sponsored Basra Oil Co. and foreign companies that are reimbursed plus a barrel fee for field development while Iraq retains ownership of the reserves.
Oil companies usually prefer deals that allow a share of the profits rather than a certain fee.
However, the priority for Chinese companies is to achieve a secure supply of oil to feed China’s growing economy, not a return for investors, said China’s oil chief executive with direct knowledge of CNPC’s global investment.
However, there are some signs that Iraq is trying to make its conditions more attractive.
France’s TotalEnergies (TTEF.PA) signed a $ 27 billion deal in September that included paying 40% of a deposit’s revenue. However, the deal is stalled due to disputes over the terms and still needs approval from some Iraqi government agencies, Reuters reported in February. Read more
TotalEnergies said it is fully committed to the project.
An oil company executive said they were skeptical that Iraq would impose more attractive conditions. But if they do not improve significantly, analysts say it is difficult to imagine that Iraq will be able to halt the relocation as the energy transition accelerates.
“Many energy companies are looking at carbon emissions, their ability to generate cash flow if commodity prices are low, and looking to improve returns,” said Ian Tom, director of research at Wood Mackenzie.
“As the priorities of energy companies change, the relative attractiveness of Iraq is changing.”
Register now for FREE unlimited access to Reuters.com
I’m registering
Report by Sarah McFarlane in London, Aref Mohammed in Basra and the Iraqi Bureau; Additional reports from Aizhu Chen in Singapore; Edited by Simon Webb and David Clark
Our standards: Thomson Reuters’ principles of trust.
Add Comment