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Officials in Baghdad have always stated that any company that arranges oil exploration contracts with the Kurdistan Regional Government (KRG) to the North will not be allowed to work in any fields under their control.
This left most companies such as; Shell (NYSE: RDS.B), BP (NYSE: BP), Marathon Oil (NYSE: MRO), Occidental Petroleum (NYSE: OXY), Murphy Oil (NYSE: MUR), and Talisman Energy (NYSE: TLM), with a decision to make; Kurdistan or Iraq?
Pavel Molchanov, an analyst at Raymond James, has said that Exxon is in some difficulty because they did not chose, instead they have “been trying to have it both ways and that, of course, creates some sensitivity.”
Exxon Mobil (NYSE: XOM) has large new oil projects in development in Canada, Angola, and Kazakhstan, but by far the largest potential growth lies in Iraq and the West Qurna field; the oil giant plans to increase its production there to more than 2.8 million barrels a day in the near future.
Related Article: Is Iraq Slipping into Civil War?
So it was somewhat of a risky move that they made in late 2011, when they bypassed Iraqi officials to strike a deal with the KRG to explore six new oil fields in the North.
Recently Exxon realised its mistake and sent its CEO Rex Tillerson to Baghdad to talk with Prime Minister Nouri al-Malaki, in an effort to try and repair the strained relationship. They were certainly rue the day they treated with the KRG if their plans for growth in Iraq are blocked.
Only time will tell if Tillerson was able to smooth things over in Baghdad.
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com