U.S. Oil Powerhouse Chevron Is Back In Iraq, But Will It Be Different This Time?
- Chevron signed an agreement in principle with Iraq’s Oil Ministry to develop the giant Nasiriyah field and other assets.
- Chevron's deal is part of a broader Western return that includes TotalEnergies’ $27B and BP’s $25B deals, with ExxonMobil also in talks.
- The re-entry is driven by Baghdad’s assurances on transparency, contract stability, and security after years of corruption and governance risks that previously pushed majors to exit.
U.S. oil and gas supermajor Chevron signed an agreement in principle last week with Iraq’s Oil Ministry for the development of the huge Nasiriyah oil field, plus other oil producing fields and exploration sites. This is the latest in a recent line of top-tier Western firms that have announced a return to Iraq following a collective exodus from the country beginning around seven years ago with ExxonMobil’s withdrawal from the crucial Common Seawater Supply Project (CSSP). ExxonMobil itself is currently in discussions with Iraq’s authorities for a new opportunity in the oil sector, according to a recent comment from the Oil Ministry, while several other U.S. firms have also signed exploration and development agreements in recent days. Supermajor oil and companies from the U.S.’s key political, economic, and security allies have also secured strategically vital energy deals in Iraq this year, including France’s TotalEnergies US$27 billion four-pronged deal (including the CSSP) and Great Britain’s BP’s US$25 billion five-oilfield deal. So, why have they all decided to return to the country now, and will they stay this time around?
Iraq had just as much oil and gas potential back when these firms left the country as it does now, and it had just as much geopolitical significance then as it does currently, so these are not the key catalysts for the mass re-entry of these Western energy heavyweights to the country. Instead, as seen in the microcosm of the potential return of ExxonMobil, it all comes down to assurances made by the Iraqi authorities that things will be different this time around when it comes to transparency. According to several senior energy, legal, and security sources exclusively spoken to by OilPrice.com in 2018/2019, ExxonMobil walked away first from the CSSP and then from subsequent projects in Iraq because of the threat to its reputation and to that of the U.S. more broadly from continuing to do business in the country was simply too great. Independent non-governmental organisation Transparency International (TI) in its ‘Corruption Perceptions Index’ neatly encapsulated the problem when it described Iraq at that time as: “Among the worst countries on corruption and governance indicators, with corruption risks exacerbated by lack of experience in the public administration, weak capacity to absorb the influx of aid money, sectarian issues and lack of political will for anti-corruption efforts.” TI added: “Massive embezzlement, procurement scams, money laundering, oil smuggling and widespread bureaucratic bribery that have led the country to the bottom of international corruption rankings, fuelled political violence and hampered effective state-building and service delivery.” It concluded: “Political interference in anti-corruption bodies and politicization of corruption issues, weak civil society, insecurity, lack of resources and incomplete legal provisions severely limit the government’s capacity to efficiently curb soaring corruption.”
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Having reached an impasse on the CSSP, ExxonMobil attempted to redress the key practical issues relating to the risk/reward balance of its other projects in Iraq, which included the supergiant West Qurna 1 oilfield, as analysed in full in my latest book on the new global oil market order. “There were three key elements that formed the basis of these negotiations [between ExxonMobil and Iraq’s Oil Ministry for the U.S.’s continuation in other projects in the country] -- ‘cohesion’, ‘security’ and ‘streamlining’,” said one of the senior energy sources based in Baghdad. Cohesion related to ensuring that building the facilities connected to projects were completed in full and in order. Security related not just to the on-the-ground security of personnel but also to the soundness of the basic business and legal practices involved in the agreement. Streamlining meant that any deal should continue as had been laid out in the agreement, regardless of any future changes to the government of Iraq. According to the source who worked very closely at the time with Iraq’s Oil Ministry, the authorities agreed to these ideas in principle but the practical implementation of them fell short of ExxonMobil’s expectations. Subsequent to this, a senior legal source in Washington exclusively told OilPrice.com that any major agreements signed by big U.S. oil and gas firms in Iraq would have to be agreed in full by U.S. lawyers, all accounts will have to be checked by U.S. accounting firms, working processes will have to be checked by U.S. project consultancy firms, and security issues of any nature will have to be worked through and then monitored on an ongoing basis with U.S. security organisations.
It is difficult to believe that such safeguards will not be in place for any future project in which ExxonMobil becomes involved and equally so for Chevron, because Chevron has also been here before. Back in 2021, the guy and gals from Houston had the distinct misfortune to find themselves dealing directly with the now rightly-buried Iraqi National Oil Company (INOC) -- widely regarded as one of the most corrupt organisations to operate in any field anywhere in the world ever. And the subject of these Stetson-curling negotiations? Exactly the same project as now. Discovered in 1975, the site’s original develop plan was shelved in the lead-up to the Iran-Iraq war that began in 1980 and lasted until 1988. The field eventually came on-stream in 2009 and was listed on the 2009-2010 fast-track development plan, which aimed to raise its output to at least 50,000 barrels per day (bpd) in the first phase. In the first half of 2009, Chevron was one of four international oil companies, along with Italy’s ENI, Japan’s Nippon Oil, and Spain’s Repsol, to be invited to submit bids to develop the field on an engineering procurement construction (EPC) contract basis. The Japanese consortium led by Nippon Oil, and comprising Inpex, and JGC Corporation, then looked set to win the contract before negotiations broke down again.
In 2014, a serious push was made to resuscitate the development of the Nasiriyah field within the broader scope of the ‘Nasiriyah Integrated Project’ (NIP) that also included the development of adjunct lesser oil sites to the main Nasiriyah site and the construction of a 300,000-bpd refinery. Bids for this wider project were encouraged by the government-ordered changes to the original Iraq technical service contract (TSC) that were aimed at addressing the concern of many oil firms that saw the original contract model as falling short of the production sharing contracts model that they preferred. Unlike the previous contracts, the new TSC variant offered investors a share in project revenues, but only when production began, and the Oil Ministry would pay recovery costs from the date of commencement of work. This differed from the previous contract where the costs were only paid when the contractor raised production by 10%. This said, investors would still have to pay 35% taxes on the profit they made from the Nasiriyah project, the same amount as in previous deals. That said, deep concerns among many of the bidders on issues connected to legal, accounting, and financial transparency led to the Nasiriyah project being shelved yet again.
Following China’s relaxing in 2017 of its earlier to all state-owned hydrocarbons companies to cut budgets, Sinopec and PetroChina proposed a deal that would see the NIP being rolled into part of the broader ‘Integrated South Project’ (ISP), later rebranded as the ‘South Iraq Integrated Project’. This aimed to boost output across Iraq’s southern oilfields, and to build out related infrastructure, including pipelines, transport routes, and the construction of the CSSP. In an interesting manifestation of karma, it transpired that even Iraq was surprised by the trickiness of China’s demands to work on the project. One example was that Beijing said it would spend US$9 billion on the NIP-related refinery and the first phase of developing Nassiryah, but that Iraq would have to pay back this cost to the Chinese from the value of oil recovered, the Oil Ministry source told OilPrice.com at the time. It also said that it should be given US$9 billion of Iraq government-backed bonds for the entire amount that could be cashed in if the development did not start to generate large amounts of oil quickly. Iraq’s view was that all this should cost no more than US$4 billion, which was the more accurate figure. China also wanted much more of their upfront costs paid back in a much shorter time than in other similar projects. This effectively meant a per barrel remuneration fee at a 15% premium to the highest maximum fee being paid at that stage to any company in Iraq for a regular crude oil producing field, which was US$6 per barrel to PetroChina for al-Ahdab. Given the alternative on offer for Beijing, then, it may be that this time around Iraq sticks to the more transparent way of doing business that Chevron has no doubt demanded for the Nasiriyah project.
By Simon Watkins for Oilprice.com
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