Discussions between the government of Iraq and oil giant Exxon Mobil Corporation (NYSE:XOM) on an infrastructure project worth billions of dollars have hit a deadlock. This was disclosed by sources in the oil sector and Iraqi officials. According to the sources the negotiations geared towards granting Exxon Mobil the contract to put up a facility for water treatment as well as related pipelines in order to increase the oil production capacity of Iraq have stalled due to differences on the costs and terms of the deal between the two sides.
If the differences are not resolved another firm is likely to be awarded the contract and deal a severe blow to the broader plans of Exxon Mobil in Iraq. This is because whoever gets the contract will also land the rights of developing a minimum of two southern oil fields – Artawi and Nahr Bin Umar.
OPEC’s second-biggest oil producer
Delays in kicking off the project would also result in Iraq’s oil sector being held back. The country is the second biggest producer among the members of OPEC. In the country’s oilfields water needs to be injected into wells to avoid losing pressure otherwise the result will be severe decline rates particularly with regards to mature oilfields. Since freshwater is scarce in the Middle Eastern country treated seawater is the best option.
A water project known as Common Seawater Supply Project was supposed to have been completed five years ago but has faced delays and now the earliest completion date is 2022. The water project is supposed to supply water to over six southern oilfields and this includes BP’s Rumaila and Exxon’s Qurna 1.
Common Seawater Supply Project
“The CSSP would be expensive and challenging but there’s opportunity here (for Exxon) … to get access to resources on a very large scale and to achieve something and really make a difference to its own business,” Wood Mackenzie’s principal analyst, Ian Thom, said.
Many of the biggest energy firms in the world operate in Iraq and this includes Eni, Royal Dutch Shell plc (ADR)(NYSE:RDS.A), Total and BP plc (ADR)(NYSE:BP). However in recent years strict contract terms and the prevailing low-return environment have reduced profits.