Exxon Mobil has officially informed Iraq's government it wants to pull out of a $50 billion oil project, telling Baghdad in a letter it has started talks with other oil companies to sell its stake, senior Iraqi officials said.
Exxon's decision to quit the West Qurna-1 oilfield will exacerbate tensions between Baghdad and the autonomous Iraqi Kurdistan region, where Exxon has signed oil deals seen as more lucrative but dismissed by the central government as illegal.
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Kurdistan has upset Baghdad by signing deals with foreign companies including Exxon, Chevron and Total. Kurdish officials say that right is enshrined in the constitution.
But Baghdad says only the central government can control oil policy.
Iraq's cabinet also said on Wednesday it was expelling Turkey's state-owned TPAO from its exploration block 9 oilfield but denied that the measure was prompted by any proposed move by the Turkish company into Kurdistan.
The withdrawal of Exxon from a key project in Iraq's south, and doubts about who can replace the U.S. giant also raise questions about the country's plans to increase crude production to 5-6 million barrels per day from 3.4 million bpd by 2015.
"Exxon has stated in its letter that it has started discussions with some international oil companies to sell its stake," Abdul-Mahdy al-Ameedi, director of Iraq's contracts directorate, told reporters.
Baghdad will reply to the letter by Sunday, another oil official said. But it is still unclear who could replace Exxon in the huge oilfield, which pumps around 400,000 barrels per day of crude, with minority partner Royal Dutch Shell.
Some industry sources have said Baghdad is keen to replace Exxon with companies from Russia or China as a way to hit back at major Western oil majors. But it was unclear which companies would have the financial heft to follow Exxon.
Russia's LUKOIL and Gazprom Neft are already working in Iraq. LUKOIL, which already runs a project to develop West Qurna-2, has said that it lacks the resources to take on a project like West Qurna-1 for the moment.
Exxon is now at the heart of a long-running dispute over oil reserves and territory between the Arab-led central government and ethnic Kurds, who have run their own regional administration in northern Iraq since 1991.
Iraq's cabinet on Wednesday said it had decided to expel Turkey's TPAO from Block 9, asking Kuwait Energy to acquire 70 percent and Dragon Oil PLC 30 percent in the project. TPAO holds a 30 percent stake in the block.
"We respect their decision. If they see such a contract renewal or stake transfer appropriate, we don't mind either," Turkish Energy Minister Taner Yildiz told reporters on Wednesday, in response to Iraq's plan.
Iraqi officials said the decision was not related to possible TPAO deals with Kurdistan.
"The cabinet rejected the approval of Turkey's TPAO as a partner," al-Ameedi said. "Removing TPAO has no connection with Kurdistan deals. We know TPAO has no deals in Kurdistan. But this decision was taken for other reasons."
He refused to give any further details.
The expulsion comes amid tensions between Baghdad and Ankara after Turkey accused Iraqi Prime Minister Nuri al-Maliki of sidelining Sunni Muslims since the onset of a political crisis in Iraq after U.S. troops left in December.
Maliki, a Shi'ite close to Iran, has traded insults with Turkey's Prime Minister Tayyip Erdogan several times, with the Iraqi leader calling Turkey a hostile state and Erdogan accusing Maliki of fanning sectarian tensions.