ExxonMobil became the first super major, as well as the latest large cap North American company, to enter the Kurdistan region of Iraq this week by signing a deal to explore six as yet unnamed blocks. The move will add the world’s largest publicly traded oil company to existing explorers, Hess Corp., Marathon Oil and Talisman Energy in the semi-autonomous region, but runs the risk of potentially alienating themselves from the Iraqi government in Baghdad. Hess Corp. was the last major US company to enter Kurdistan in July, which subsequently prompted the Iraqi Government to remove them from their list of pre-qualified bidders for the country’s fourth bidding round.
The major difference between the situations of Hess Corp. and ExxonMobil is that Hess had little to lose from being excluded by Iraq, whereas ExxonMobil have existing operations in the country, namely the redevelopment of the giant West Qurna I field. It’s inconceivable that a company like ExxonMobil would not have considered the implications of the block signings, therefore the conclusion must be that either the company has assurances from Bagdad that their Iraqi operations will not be jeopardised, or they feel like the more attractive fiscal terms offered in Kurdistan is worth the risk.
The deal came as a major boost for existing companies in the region such as London-AIM listed Afren Plc and Gulf Keystone Petroleum Ltd., with the latter holding the largest proven reserves in the region via their eight billion boe Shaikan discovery. The opportunity for major discoveries in the region has never been in question, but the political risk stemming from Baghdad’s failure so far to ratify the contracts issued by the semi-autonomous Kurdistan Regional Government had kept the major oil players at bay.
With each new major company that enters, the combined investment and political power that the companies hold can only increase the chances that the protracted stand-off will finally be resolved. Upon announcement of the award to ExxonMobil the share price in GKP surged to a 25%+ gain, while Afren plc, who signed a $600 million deal in July with Komet Group, gained 15%.
In Brazil Sinopec added to its already extensive investment in the country with a $3.5 billion deal with Galp Energia for a 30% interest in the company’s subsidiary, Petrogal Brasil. Sinopec had previously entered the Brazilian oil and gas sector, targeting the offshore pre-salt region when they took a 50% stake in Repsol Brasil for $7.1 billion in October 2010. The deal comes in a week where the huge prospective reserves of the area received further confirmation via preliminary drilling results from Petrobras. The company announced that the Franco NW well has confirmed the extension of the Franco area, thought to hold a potential three billion barrels of oil.
As one deal by a Chinese state company to secure South American reserves was sealed another drifted away, with the termination of Bridas Corp.’s drawn out $7 billion deal for a 60% stake in Pan American. As a result the seller; BP, had to pay back the $3.5 billion deposit in addition to a $700 million settlement fee to the Sino-Argentinean company, 50% owned by CNOOC. The noise coming from the BP camp however, is that the company is relatively unconcerned, as was reflected in the barely visible share price movement upon the termination announcement. The oil price as per the WTI benchmark is now 18% higher than when BP and Bridas struck their initial deal back in November 2010, which at the time valued the 917 million boe of proven reserves at just $7.74 per boe.
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Weekly Update: ExxonMobil makes dramatic entry into Kurdistan