The American oil giant Exxon Mobil and its partners are embroiled in a $50 million payment dispute with the Iraqi government over an oil field in southeastern Iraq that the companies are upgrading and modernizing. The Shiite-led government of Prime Minister Nuri Kamal al-Maliki is also unhappy with Exxon over a separate development deal the company has struck with the leaders of the semiautonomous Kurdistan region in northern Iraq.
The Iraqi government’s failure to pay Exxon, the only American oil company operating in southern Iraq, for nearly two years of work underscores the perils for Western companies seeking to do business there. The government has not explained why it has withheld the payments.
Any perception that the Iraqi government will not honor its oil contracts could also send ripples beyond Iraq to international markets worried about disruptions in petroleum supplies. Iraq is expected to ramp up oil production faster than any other country in the next 25 years, with a capacity of five million barrels of oil a day by 2035, more than traditional leaders like Saudi Arabia, according to the International Energy Agency.
“The international oil companies are putting in the capital and expertise,” Alex Munton, a Middle East analyst for Wood Mackenzie, a research and consulting firm based in Edinburgh, said. “They need to recover their costs and get a profit margin on top. For it to work, they have to be paid what they are due.
“It would certainly serve Iraq’s interests well to have that contract working smoothly,” he added.
Exxon’s 2009 deal with the Iraqi government to improve production in the West Qurna 1 field was never expected to be lucrative under the best of circumstances. The government had agreed to pay Exxon and its partners $1.90 for each additional barrel of oil they pumped after refurbishing the already producing field. The fees would barely be enough to cover the companies’ costs. Other deals between Iraq and foreign oil companies had similar terms.
International oil contracts are more typically structured to compensate companies with a percentage from sales or a share of production that takes into account the fluctuating price of oil, so that they can be more profitable for the companies when prices rise.
Western oil companies, shut out of Iraq’s oil fields for decades under the government of Saddam Hussein, were willing to do the low-profit, technical service deals to get a foot in the door with the new government that was put in place after the American-led invasion in 2003. Only a few dozen of Iraq’s 80 or so discovered fields are in production, and the government has suggested that it would give more lucrative agreements later to companies that helped the country early on.
For most of the nearly nine-year war, American government advisers aided Iraqi ministries in negotiating and fulfilling contracts. That tapered off as Iraq assumed more sovereignty. President Obama, in a meeting this month with Mr. Maliki in Washington, said Iraq was now a country “sovereign, self-reliant and democratic.”
Exxon and its minority partners in the project — which include the Anglo-Dutch oil giant Shell — increased output in the West Qurna field by more than 10 percent by last March. That was the trigger point for the Iraqi government to begin paying the companies for their work.
But the payments have not been made, according to Hans Nijkamp, Shell’s country manager for Iraq.
“There are a lot of admin-type issues that we’re working through with the government,” Mr. Nijkamp said in an interview.
He said Shell did not believe the delays were deliberate and that the issues would eventually be resolved.
An Exxon Mobil spokesman declined to comment, saying the company has a policy of not discussing commercial matters.
Omar al-Jawoshy contributed reporting.
Article source: http://feeds.nytimes.com/click.phdo?i=122975dbf27055d16e127e2f24393be0
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