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UPDATE 3-Total's Kurdistan oil deal angers Iraq
July 31, 2012 / 1:22 PM / 5 years ago

UPDATE 3-Total's Kurdistan oil deal angers Iraq

* Total buys 35 pct stake in two blocks from Marathon Oil

* Iraq governement officials says Total to be blacklisted

* Total to be operator of Safen block development

By Caroline Jacobs and Ahmed Rasheed

PARIS/BAGHDAD, July 31 (Reuters) - French oil major Total has bought a 35 percent stake in two exploration blocks in Iraq’s Kurdistan region, drawing an angry response from the Iraqi government which has tried to bar companies from dealing directly with the semi-autonomous region.

Total, which is following U.S. rivals into the area, was warned by Baghdad on Tuesday it faced “severe” consequences for buying the stakes in the Harir and Safen blocks from U.S. peer Marathon Oil without the government’s consent.

“We will punish companies who sign deals without the approval of the central government and the oil ministry,” said Faisal Abdullah, a spokesman for Iraq’s Deputy Prime Minister for Energy Hussain al-Shahristani.

“Unless Total reviews the deals, it will face severe consequences... Total will be blacklisted for violating Iraqi law,” he said without giving further details.

Total, seeking to tap Iraqi Kurdistan’s vast oil reserves and bank on more attractive terms than in the south of the country, ignored earlier veiled threats to refrain from deals with the Kurdish region.

“The Baghdad authorities were kept informed of Total’s intentions,” a Total spokesman said on Tuesday, declining to comment further after the Iraqi official’s comments.

Total’s investment comes as it seeks to grow its annual oil production by 2.5 percent on average at a price of $100 a barrel through to 2015. But lower output in this year’s second quarter due to several disruptions led Total to refrain from reiterating the target for this year, referring to an investor day in September for details.

A spokesman for the autonomous Kurdistan Regional Government (KRG) did not immediately answer a request for details.

In Paris, the Energy Ministry and the Prime Minister’s office had no comment on the matter.

Total’s Chief Executive Christophe de Margerie had signalled in February that the group was considering investments in Kurdistan since contractual conditions there were better than in the rest of Iraq where it and its partners began production at the south-eastern Halfaya field in June.

Both fields in the Marathon Oil deal are located south of Iraq’s border with Turkey. Seismic exploration of both fields is expected to be completed by September.

The first exploration well on the Harir field was drilled on Monday and the first exploration well on the Safen field will be drilled next year, Marathon Oil said.

“These are enormous blocks. There’s rarely a disappointment in exploration in Kurdistan,” said a Paris-based analyst who declined to be named.

“They have a permit in the south of Iraq and at the worst the government could renegotiate concessions or withdraw the license. But these wells are not very profitable,” he said.

He cited the exit of Statoil and Exxon as evidence of their disappointment with the wells and the terms that Baghdad has set for oil majors to operate them.

He said the challenge for Total and its peers doing business in Kurdistan would be to transport the product, as Baghdad could block the use of its pipelines in the south.

The deal will further strain ties between Baghdad and the KRG which is caught up in a long-running political feud over oil rights and disputed territories along its hazy internal border.

Exxon Mobil became the first oil major to move into the northern region of Iraq in mid-October when it signed a deal with the KRG. Norway’s Statoil is also looking closely at KRG exploration deals, industry sources have said.

The Iraqi central government in Baghdad considers that any oil contracts signed with Kurdistan are illegal and it blacklisted Chevron Corp, which followed Exxon into Kurdistan this month, over such a deal.

Autonomous since 1991, Kurdistan has its own government and armed forces, but still relies on the central government for its budget drawn from the OPEC nation’s oil revenues.

Kurdish officials accuse Iraqi Prime Minister Nuri al-Maliki, a Shi‘ite, of amassing power at the expense of Sunni and Kurdish minorities, but Baghdad says Kurdistan is breaking with the constitution by signing deals with foreign companies.

Increasingly chafing against Baghdad’s authority, Kurdistan is testing the central government with proposals for a more independent energy policy.

Now one of the most prosperous parts of Iraq, Kurdistan has been isolated from the violence and sectarian strife that still beset the rest of the country.

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