When Iraq began offering leases to its vast oil deposits a couple of years ago, there weren’t a lot of big oil companies lined up to buy in. Iraq’s offer of reimbursing development costs, a flat payment of less than $2/barrel, and an up-front payment from the lessee of several million dollars was easy to refuse. The big companies changed their tune in later rounds of leasing, figuring that they couldn’t afford to be locked out of the country forever.
Oil giants like Exxon Mobil Corp. (NYSE: XOM), BP plc (NYSE: BP), and Royal Dutch Shell plc (NYSE: RDS-A) all eventually won leases on Iraq’s terms, even though the companies did not like the terms. US oil field services companies like Halliburton Co. (NYSE: HAL) and Baker Hughes Inc. (NYSE: BHI) who were subcontracted by lease winners to perform the actual work were the big winners because they did not depend on Iraq for payment, but on the leaseholders.
Exxon Mobil is owed about $50 million for work it has done in southeast Iraq, according to a report in The New York Times. The Iraqis say they are not paying due to a bureaucratic snafu. Others believe Iraq is holding back due to a recent contract Exxon signed with the Kurdish government to develop a field in Kurdistan. Iraq’s central government and the semi-autonomous Kurdish government disagree about which is empowered to offer development deals in Kurdistan and what the terms will be.
The Kurdish contract with Exxon is a production-sharing deal which is far more lucrative than the flat-fee structure that the central government is offering because Exxon owns some of the oil it pumps and gets to sell it at whatever the current market price is.
The oil company has knowingly put itself right in the middle of a domestic Iraqi political dispute by signing the deal with the Kurds. Assuming that Exxon is run by some smart people, the only reason to make that deal is that the potential reward is much greater than the potential risk. Exxon is betting that the Iraqi government will eventually bend to the will of the Kurds because the central government ultimately has no choice. It can’t afford to grant full autonomy to Kurdistan, nor can it use armed force to bring it under control.
Exxon’s deal with the Kurds is certainly worth the delay of a $50 million payment from the Iraqis. Think of it as the ante in a high stakes poker game.
Paul Ausick
100 Million Americans Are Missing This Crucial Retirement Tool
The thought of burdening your family with a financial disaster is most Americans’ nightmare. However, recent studies show that over 100 million Americans still don’t have proper life insurance in the event they pass away.
Life insurance can bring peace of mind – ensuring your loved ones are safeguarded against unforeseen expenses and debts. With premiums often lower than expected and a variety of plans tailored to different life stages and health conditions, securing a policy is more accessible than ever.
A quick, no-obligation quote can provide valuable insight into what’s available and what might best suit your family’s needs. Life insurance is a simple step you can take today to help secure peace of mind for your loved ones tomorrow.
Click here to learn how to get a quote in just a few minutes.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.