French oil major Total SA has become the latest big oil company to shift the focus of its Iraq ambitions toward the semi-autonomous Kurdistan region, and away from the much larger but economically challenging contracts offered by Baghdad.
Total's chief executive said on Friday he was considering possible investments in Kurdistan, something which previously prompted the central Iraq government to bar companies from investing in the south of the country, and added he did not plan to chase contracts in Baghdad's next licensing round.
"From what we are hearing the conditions of the fourth bidding round in Iraq do not appear very attractive," Christophe de Margerie told a press conference. "The interest in Kurdistan is that there are plenty of gas and oil reserves there and contractual conditions are better."
After the second Gulf war, Iraq opened its oil industry to foreign investment.
Its vast reserves and hopes of raising production to 12 millions barrels per day -- higher even than Saudi Arabia's -- held out the possibility of a major bounty for Western oil companies which had largely been ejected from the region in the 1970s.
But the tough terms demanded by Baghdad have been a disappointment for some.
Total has a minority stake in the PetroChina -led consortium that won a contract to develop the Halfaya oilfield in the Missan province but has long argued the $1-$2/barrel fee offered by Iraq is not generous enough.
Norway's Statoil has told Iraq it wants to exit its stake in the 12.9 billion barrel West Qurna Phase-2 oilfield in southern Iraq.
Around the time the deal was announced, de Margerie said Statoil and partner Lukoil would struggle to cover their costs with the $1.15 fee they agreed to accept.
While the Kurdistan Regional Government (KRG) in the north of the country offers better terms, the reserves are smaller.
Also, companies who previously invested in the region, such as China's Sinopec and U.S. oil group Hess, have been barred from investing in the south as Baghdad disputes the KRG's right to issue contracts.
Exxon Mobil became the first of the big Western oil groups who held a Baghdad contract to invest in Kurdistan last year, prompting a long-running spat.
Abdul Mahdy al-Ameedi, head of Iraq's contracts and licensing division, told Reuters on Thursday Exxon should freeze its activities in Kurdistan if it wished to maintain its licence to develop Iraq's supergiant West Qurna-1 oilfield.
Exxon has already been stripped of its role as project leader for a multi-billion-dollar water injection scheme that is core to the development of Iraq's supergiant oilfields in the south, he added.
Kurdish and industry sources told Reuters earlier this month Total has been mulling whether to risk Baghdad's ire for some months.
Total confirmed its interest in Kurdistan as it unveiled higher profits for 2011, thanks to rising oil and gas prices, and announced plans to boost its investment budget.