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Exxon, Iraq at Odds on Major Oil Contract

XOM

An important oil industry contract between Exxon and Iraq could fall through, throwing a wrench in the works of Iraq’s oil industry expansion, Reuters reports, citing sources close to the developments.

The contract is for a water treatment facility complete with a pipeline network, which will supply well injection water to six fields in southern Iraq to boost well yields and slow down depletion. Exxon, which operates one of the fields that will benefit from the installation—West Qurna 1—has been negotiating the terms for two years, but the two sides are still unable to reach agreement on the terms and costs associated with it.

If the deal falls through, it would be bad news not just for Baghdad, but for Exxon as well as the deal would mean the supermajor would receive the rights to develop two fields in southern Iraq in addition to West Qurna 1: Nahr Bin Umra and Artawi. More fields could be thrown in as well, the Reuters report suggests.

For Iraq, the Common Seawater Supply Project is instrumental in its plans to boost oil production capacity to as much as 6.5 million bpd by 2022. This compares to a current production capacity of below 5 million barrels, and production rates—as reported by the local energy ministry—of around 4.4 million bpd as per its OPEC quota.

Related: The Biggest Hurdle To China’s Yuan-Priced Crude Benchmark

This boost cannot happen without a substantial increase in water supply, and since Iraq has scarce freshwater resources, processed seawater is the most viable option. The CSSP project was supposed to be awarded this year, so construction work can begin with a launch date set for 2022, but it may end up being awarded to another company, some analysts believe.

This is not the first time the talks between Exxon and Baghdad have hit a snag: they were shelved back in 2012—again on cost differences—but were restarted in 2015. According to the initial front-end engineering and design study, the project was estimated to be worth US$12 billion, but has been revised downwards along with the revision of its capacity from 12.5 million bpd of seawater to 5 million bpd. This will be increased in the future to 7.5 million bpd.

By Irina Slav for Oilprice.com

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