Iraq says Exxon to quit oilfield, ends Turkey TPAO deal

Exxon Mobil has informed the Iraqi government it wants to pull out of a $50 billion oil project, and Baghdad expelled Turkey's state oil operator from another contract on Wednesday, both signals of trouble in Iraq's petroleum policy.

"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.

The move by Exxon to quit the West Qurna-1 oilfield in south Iraq 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.

Kurdistan has upset Baghdad by signing oil deals with foreign companies including Exxon, Chevron and Total . Kurdish officials say they have the constitutional right to do so, but the central government says only it controls oil policy.

Iraq's cabinet also said it was expelling Turkey's state-owned TPAO from its exploration block 9 oilfield for an unspecified reason, denying it was prompted by any move by the Turkish company into Kurdistan.

Baghdad plans to reply to the letter from Exxon by Sunday, another oil official said. But it was unclear who would replace Exxon if it leaves the huge oilfield, which pumps around 400,000 barrels per day of crude, with minority partner Royal Dutch Shell.

Exxon has not commented publicly on its plans.

Doubts about who can replace Exxon in the important project could raise questions about Iraq's target to increase crude output to 5-6 million barrels per day by 2015 from 3.4 million bpd.

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.

EXPULSION

Iraq's cabinet also decided to expel Turkey's TPAO from Block 9, where it holds a 30 percent stake, and asked Kuwait Energy to boost its stake to 70 percent from 40 percent. Dragon Oil holds the remaining 30 percent.

"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.

Iraqi oil officials said removing TPAO from the exploration project will not affect the company's other activities in oil and gas fields across the country.

TPAO has minority stakes in the two small oilfields of Badra and Maysan in the south and is running two gas fields along with Kuwait Energy in the province of Diyala and the southern oil hub of Basra, both near Iraq's borders with Iran.

"TPAO can still operate in other oil and gas projects in Iraq without being affected by removal from the exploration deal," Ameedi told Reuters.

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.