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Shell did not sign Kurdish deal, Baghdad says

: Sept 28, 2012

Baghdad has denied reports Royal Dutch Shell will become the latest oil major to set up shop in the autonomous Kurdish north.

“We don’t have any discussions with the Kurdish regional government [KRG] about working in the region,” a statement released by the office of Iraq’s deputy prime minister for energy quotes Hans Nijkamp, a Shell vice president, as saying.

According to the statement, Mr Nijkamp also described as “inaccurate” reports that the oil major was set to follow its competitors ExxonMobil, Total and Chevron into the autonomous north.

Shell refused to comment yesterday. A spokesperson for the KRG also declined to comment.

But Ashti Hawrami, the KRG’s energy minister, last week confirmed the Kurds were in negotiations with further oil majors over deals to produce oil in the region.

ExxonMobil, the world’s largest international oil company, last year became the first major active in Iraq proper to defy Baghdad and sign a contract to explore six blocks in Kurdistan.

The central government claims the contracts with the KRG are illegal, and fears that granting it autonomy over its energy resources will lead to full Kurdish independence.

It has blacklisted smaller outfits in Kurdistan from future auctions in the south and barred Exxon from the subsequent licensing round.

Threats to eject the US company from its operations in the giant oilfields in Iraq have remained empty, however, and Total’s and Chevron’s entry into the Kurdish north have so far gone unpunished.

Oil majors have found the contracts they operate under in Iraq proper are less profitable than hoped for and the production-sharing contracts offered by the KRG more lucrative.

Production in Kurdistan has so far been blighted by Baghdad’s refusal to pay companies a rate that exceeds production costs, as well as intermittent and inadequate payments.

But the central government, which is in charge of all payments for exported crude, has recently improved conditions for producers of Kurdish oil by pledging to pay out according to contractual terms from next year.

The long-delayed adoption of a national oil law that would resolve the Erbil-Baghdad dispute was given new impetus this month with the creation of a working group staffed by members of both governments. Entering Kurdistan could nevertheless be a dangerous strategy for Shell without Baghdad’s consent, experts warn.

“Shell’s investment portfolio in the southern part of Iraq is gigantic and diverse, hence it is too risky for them to make such a move without full coordination and blessing by both parties, the federal government and the Kurdistan regional government,” said Luay Al Khatteeb, the executive director at the Iraq Energy Institute.

“Even if Shell is not legally challenged, it cannot have its current business commitments hindered by the federal authorities.”

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