The Iraqi oil ministry last year thwarted three potential deals that would have given Chinese companies more control over Iraq’s oil fields, leading to the displacement of major international oil companies that Baghdad wants them to invest in its faltering economy, according to a Reuters report .
Since the beginning of 2021, Russia’s Lukoil (LKOH. MM) and major US oil company ExxonMobil (XOM.N) have been planning to sell interests in key fields to Chinese state-backed companies, the agency said, referring to Iraqi oil officials and operations managers.
The agency quoted people he described as familiar with the matter, saying that selling a stake to a Chinese state-owned company was also one of several options being studied by British Petroleum, but officials persuaded it to Iraq to stay.
China is the largest investor in Iraq, and last year Baghdad was the biggest beneficiary of the Belt and Road Initiative launched by Beijing, which received $ 10.5 billion in funding for infrastructure projects, including a power station and an airport. .
However, Reuters reports that the Iraqi government and officials in state-owned companies are concerned that more fields in the hands of Chinese companies could accelerate the exodus of Western oil companies, a total of seven Iraqi oil officials and executives of companies operating in Iraq , said. Reuters in interviews. .
Backed by state-owned oil company officials, Iraqi Oil Minister Ihsan Abdul-Jabbar prevented Lukoil from selling a stake in one of the country’s largest fields, West Qurna 2, to China’s state-owned Sinopec, three last year. people familiar with the matter said order.
People familiar with the matter said that Iraqi officials also intervened last year to prevent Chinese state-aided companies from buying Exxon’s stake in West Qurna 1 and to persuade BP to stay in Iraq instead of its stake in transfer the gigantic Rumaila oil field to a Chinese. company.
Rumaila and West Qurna together produce about half of the crude oil coming from Iraq, which has the fifth largest oil reserves in the world.
According to the agency, the Iraqi oil ministry did not respond to Reuters’ requests for comment on the deals or the minister’s role in any interventions.
Two government officials told Reuters the government was concerned that China’s dominance could make Iraq less attractive for investment than elsewhere.
Some officials have said that China’s strengthening relationship with Iran has helped its position in Iraq due to Tehran’s political and military influence there, but the oil ministry is careful to relinquish more control over the country’s key resources.
Another Iraqi official said: “We do not want the Iraqi energy sector to be described as an energy sector led by China, and this position is agreed between the government and the Ministry of Petroleum.”
The interventions over the BP, Exxon and Lukoil sites in Iraq come after the British oil major Shell (SHEL. L) 8 decided to withdraw from Iraq’s vast Majnoon oil field in 2018.
The interventions also represent a turnaround after Chinese companies won the most energy deals and contracts awarded over the past four years.
Iraqi oil officials said Chinese companies had accepted lower profit margins than most competitors.
It quoted a statement from the state-owned China National Offshore Oil Corporation as saying that “all the rules relating to tenders have been formulated jointly by the Chinese and Iraqi side and have been carried out according to transparent and fair principles.”
However, giving more Chinese investment is a risky strategy, Reuters says, and the government needs billions of dollars to rebuild the economy following the defeat of ISIS in 2017.
Over the past decade, oil revenues 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 chiefs scrambled to gain access to Iraq’s vast oil fields following the US-led military intervention in Iraq in 2003, they are increasingly focusing on energy transitions and better terms for developing the fields, oil executives said.
China is one of the largest buyers of Iraqi crude oil, and Chinese state-owned companies have built up a dominant position in the oil industry.
But when Lukoil informed the government last summer that he was considering selling his stake in West Qurna 2 to Sinopec, the oil minister intervened, people familiar with the matter said.
It has not been previously mentioned that Sinopec was a potential buyer of Lukoil’s interest. The Chinese company did not respond to a request for comment.
To encourage Lukoil to stay, Baghdad has finally agreed to its plan to develop a field known as Block 10, where the Russian company discovered oil reserves in 2017.
After that, Lukoil abandoned the idea of selling his stake in West Qurna 2, according to the source.
Lukoil did not respond to a Reuters request for comment.
BB and Exxon
Over the past few years, BP has also talked to the government about its options – including leaving Iraq altogether – before deciding to convert its Rumaila stake into an independent company last year, two people familiar with the case said.
Representatives of the sources said that Oil Minister Abdul-Jabbar was leading efforts to persuade BP not to leave because the government was worried that its partner in the field, China National Petroleum Corporation, would buy BP’s stake. They said Baghdad was also keen to keep such a leading international oil company in the country.
BP declined to comment to the agency.
And when Exxon announced its intention to leave Iraq in January 2021, U.S. officials said they were unhappy with the prospect of withdrawing the largest U.S. oil company – for reasons similar to Iraqi concerns.
U.S. State Department officials said Exxon’s departure could create a vacuum for Chinese companies to fill, a person familiar with the talks told Reuters.
U.S. officials then asked Exxon what it would take to stay in Iraq, the person said, refusing to give further details.
“We regularly liaise with our Iraqi counterparts in promoting an empowering environment for investment in the private sector,” a State Department spokesman said.
Iraq has a veto on oilfield transactions and has not agreed to this agreement.
Exxon applied for arbitration at the International Chamber of Commerce against the Basra Oil Company, arguing that it followed the terms of the contract for West Qurna 1 and had a good deal on the table, people familiar with said with the case.
The Ministry of Petroleum took the unusual step of mediating the transaction on behalf of Exxon, and the ministry acknowledged Exxon’s interest in other Western companies, including Chevron Corp. (CVX.N) offered.
Rather than let the stake go to Chinese companies, Baghdad said the state-run Iraq National Oil Company would take it sooner, even though the Iraqi National Oil Company is still reviving after its interruption for many years.
“(Exxon) will continue to work closely and constructively to find a fair solution,” a company spokesman said.
Iraq’s oil industry relies mainly on technical service contracts between the state-subsidized Basra Oil Company and foreign companies for which additional fees are paid per barrel to develop the fields, while Iraq retains ownership of the reserves.
The big oil companies usually prefer transactions that allow a share in the profits rather than a fixed fee.
However, the priority for Chinese companies is to secure oil supplies to stimulate the growing Chinese economy, rather than generate returns for investors, a Chinese oil manager said with direct knowledge of CNPC’s global investments.
Reuters says there is an indication that Iraq is trying to make its terms more attractive to companies.
It quoted analysts as saying that unless Iraq’s conditions improve significantly, it is hard to imagine Iraq being able to stop the exodus of companies with a change in the global trend towards carbon emissions.
And the agency quotes Ian Thom, director of research at consulting firm Wood Mackenzie, as saying that “many large energy companies are looking at carbon emissions, their ability to generate cash flow when commodity prices are low, and looking to improve returns,” he added. at, “With the changing priorities of energy companies, the relative attractiveness of Iraq is changing.