Chevron Corp. will be denied exploration contracts with Iraq’s government because the second-largest U.S. energy company agreed to do business in the semi-autonomous Kurdish region, the Oil Ministry said.
Chevron acted without the approval of the central government, “which considers such agreements as illegal and illegitimate,” the ministry said Tuesday in an e-mailed statement. “The conditions and regulations of these agreements grant the oil companies a large share of crude production and are thus a squandering of the national wealth.”
The U.S. company said July 19 that it will buy Mumbai-based Reliance Industries Ltd.’s 80 percent stake in two blocks in the Kurdish region of northern Iraq. Chevron’s entry follows Exxon Mobil Corp.’s investment last year in territory controlled by the Kurdistan Regional Government. Iraq’s central government refused to recognize Exxon’s agreement with the Kurds and blocked it from a May auction of energy-exploration rights. Chevron has no other operations in Iraq.
The government in Baghdad is disputing with the KRG the contract terms for energy investors and sharing of revenue from sales of Kurdish oil. The Kurds halted crude shipments on April 1 through a pipeline controlled by the central government and announced plans to build their own export link.
“Chevron and the entire world knows that the crude oil from Kurdistan isn’t delivered to the federal Oil Ministry as agreed but is smuggled to neighboring countries such as Iran and Turkey through organized smuggling rings,” the Oil Ministry said. “Nobody knows about the quantities and the revenues of the smuggled crude oil.”
Sally Jones, external communications adviser for Chevron in Europe, Eurasia and the Middle East, wasn’t available for comment Tuesday.
Chevron’s agreement with the Kurds without the approval of the central government harms the company’s credibility, the ministry said. “It should feel ashamed about what it did.”
Iraq’s Deputy Prime Minister for energy affairs, Hussain al-Shahristani, warned French companies against making separate agreements with Kurdistan last month after Total SA Chief Executive Officer Christophe de Margerie said he was looking closely at the region.
Kurdish leaders have enticed more than a dozen foreign energy companies to sign deals by offering production-sharing contracts that allow explorers to own a portion of the oil they discover and book reserves.
A version of this article appeared in the print edition of The Daily Star on July 25, 2012, on page 5.