Business/economics

Iraq May Turn to China as Chevron Declines ExxonMobil’s West Qurna Stake

With Chevron out of the picture, Iraq may turn to China to buy ExxonMobil’s 32.7% stake in West Qurna-1, or it may buy some or all of the stake itself to meet an end of June deadline to complete the sale.

The Basra Oil Co. oversees oil production in southern Iraq, including the West Qurna and Majnoon oil fields.
The Basra Oil Co. oversees oil production in southern Iraq, including the West Qurna and Majnoon oil fields.
Basra Oil Co.

Iraq may turn to China to meet its deadline of finalizing the sale of ExxonMobil’s 32.7% stake in the West Qurna-1 oil field by the end of June, after Chevron declined to buy out its rival’s position.

Earlier this month, Iraq’s oil ministry had signaled it preferred a US company to replace ExxonMobil as operator of the field near Basra. But when Chevron declined the offer, state-run Basra Oil Co. (BOC) widened its net to consider buyers from outside of the US, BOC Director General Khalid Hamza told Reuters in an interview.

“We have no objection either on PetroChina nor CNOOC, they are our partners already,” Hamza told Reuters, adding that also “BOC may buy Exxon’s share, or any of the oil ministry’s companies may buy.”

ExxonMobil submitted a request in January to sell its stake in West Qurna-1 so as to shed some of the more than $70 billion in debt it accumulated in 2020; debt that resulted in two downgrades by Moody’s Investors Service in less than a year, according to Reuters.

Exxon has focused on asset sales to reduce its debt and protect its $15-billion-a-year dividend, Reuters wrote, while quoting Bloomberg that Exxon’s stake in West Qurna-1 could fetch $500 million.

China National Petroleum Corp. and CNOOC Ltd. had considered buying the stake last year, according to Bloomberg.

But the Iraq government preferred to look first for a US alternative given that PetroChina currently holds a 32.7% stake in West Qurna-1, and the potential sale of ExxonMobil’s stake to another Chinese major would give China the majority influence over the project.

Other shareholders in the project include Japan’s Itochu Corp. with 19.6% and PT Pertamina with 10%.

“We hoped that Chevron would buy Exxon’s share and be the replacement, but it seems that they didn’t have the desire to be the replacement,” Hamza told Reuters.

Exxon has been the lead contractor at West Qurna-1 since 2010 when Iraq started to rebuild its oil industry in the wake of the Second Gulf War. But tough contractual terms, OPEC production cuts, payment delays, and political risk have made the field less profitable.

Though West Qurna-1 is one of the world’s largest oil fields in terms of reserves, boasting an estimated 20 billion bbl, producing those reserves requires continual investment to maintain production, principally investment in a major water-injection project that has repeatedly been delayed.

In March, Schlumberger won a $480-million deal to drill 96 oil wells in southern Iraq for BOC and ExxonMobil.

In November 2020, ExxonMobil announced its plans to spend between $16 billion and $19 billion in 2021 and between $20 billion and $25 billion annually up to 2025. These figures represent a considerable reduction from ExxonMobil’s March 2020 capital plan that forecast $30 to $35 billion in exploration and development spending.

In addition to its marquee developments offshore Guyana and the Permian Basin in Texas and New Mexico, the new capital program will also focus on “targeted exploration” projects in Brazil and the company’s chemicals division, according to a statement from ExxonMobil.

During the virtual 2021 International Petroleum Conference, Kerry Moreland, vice president, ExxonMobil Upstream Business Development Co., discussed the company’s outlook for Africa, including Guyana and Suriname.