Iraqi province looks to court ExxonMobil

Talks: Nineveh province courts US giant ExxonMobil

Iraq's Nineveh province wants to start talks with US giant ExxonMobil about developing potentially huge oil reserves in a move certain to reignite conflict with central government over control of the country's energy resources, according to a report.

ExxonMobil, the world's largest publicly traded energy company, infuriated Iraq last year by signing production sharing contracts with the autonomous Kurdistan region.

Two of the six exploration blocks lie in areas claimed by the northern Nineveh province and Kurdistan and the Bashiqa block may be the prize of the package, industry sources told Reuters.

Nineveh Governor Atheel al-Nujaifi said the province should have a stake in those contracts and is embarking on a "strategic four-stage plan" to deal with ExxonMobil and other foreign oil companies and co-operate with the Kurdistan Regional Government (KRG).

"Taking the constitution as a starting point, we are in the process of legally studying our options to allow us to start negotiating and contracting with Exxon to invest in Nineveh province," Nujaifi told Reuters.

Iraq has said ExxonMobil's deal with the KRG is illegal and has called on US President Barack Obama to intervene.

That has not deterred Nujaifi, who has met with ExonMobil executives to discuss how the company might develop Nineveh energy resources.

The US supermajor is prepared to work in Nineveh if it is on solid legal ground but wants to steer clear of political problems, according to the Nineveh governor.

"We are seeking to be part of the deals signed by KRG and especially those inside Nineveh borders," Nujaifi said.

Once the Nineveh provincial council approves the holding of talks, the provincial authorities will be able to make direct deals with foreign oil firms and the KRG, Nujaifi said.

Disputed areas between Kurdistan and the central government have been seen as a potential flashpoint for conflict as tensions between the two areas rise, without the buffer of a US military presence.

US troops withdrew from Iraq in December.

The Kurds see parts of majority Arab Nineveh as part of their ancient homeland and want them included in Kurdistan.

But there are signs that relations are warming. The KRG's energy minister Ashti Hawrami said last month that Kurdistan may start to supply electricity to Nineveh.

Nineveh's talks with foreign oil firms could further strain the thorny relations between Kurdish authorities and Baghdad.

"This move by Nineveh's governor could further complicate issues and worsen the situation. Any suspicious deals made by the governor and ExxonMobil will not be tolerated," the Prime Minister's media advisor Ali al-Moussawi told Reuters.

The Nineveh provincial council last month rejected a call by Iraqi Prime Minister Nuri al-Maliki to sack Nujaifi over the ExxonMobil initiative.

But Nujaifi's step may also draw more oil majors into deals on a regional and provincial basis, despite warnings from Baghdad that this could jeopardise dealings with the central government.

Iraq's oil and gas fields have suffered from decades of neglect because of war and economic sanctions.

In the past three years it has agreed a raft of deals with foreign firms - with more on offer - that would make it the world's biggest source of new oil production over the coming years.

However, Baghdad has offered fee-for-service contracts rather than the production-sharing agreements which foreign firms prefer because they are more lucrative.

The Kurdish region has offered production-sharing deals but before ExxonMobil's agreement last year, only smaller firms had come forward.

Iraq last month asked Obama to stop ExxonMobil exploring for oil in Kurdistan, saying the US company's actions could have dire consequences for the country's stability.

"Until now they have not replied with clear answers and we are waiting for an answer from the US administration about the necessity of barring Exxon from moving ahead with its contract," Maliki told reporters last week.

The dispute over oil is at the heart of years of unresolved wrangling over a hydrocarbons law designed to establish a solid legal framework for investors seeking to develop the world's fourth largest oil reserves.

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