Iraq
is close to reaching a deal with oil majors BP and Eni for an export pipeline
project that was initially planned as part of a mega-deal with US energy giant
ExxonMobil, according to five senior Iraqi oil officials involved in the
negotiations.
Under
the proposed $400 million agreement, British company BP and Italy's Eni would
run the scheme to build two seabed oil pipelines for Iraq's southern exports
through the Gulf, the sources said, declining to be named as the discussions
have not been made public.
The
pipeline work was meant to be part of a larger, $53 billion project that Exxon
looked poised to move ahead with earlier this year, but an agreement with
Baghdad was held back by contractual wrangling and security concerns, the
officials said.
The
30-year mega-project is the focus of Exxon's plans to expand in Iraq, OPEC's
second-largest producer, and a chipping away of schemes from the deal could
drag on the company's ambitions.
The
BP and Eni talks with Baghdad follow an announcement from Iraqi officials in
June that South Korea's Hyundai Engineering & Construction Co Ltd had been
selected to build a $2.4 billion seawater injection facility – another part of the deal originally on the table with Exxon.
ExxonMobil
and Eni declined to comment, while BP had no immediate comment.
In
May, Iraq's proposed bumper deal with Exxon appeared imminent. US Secretary of
State Mike Pompeo discussed it with Iraqi Prime Minister Adil Abd al-Mahdi
twice in three days, including during a surprise visit to Baghdad. Abd
al-Mahdi, meanwhile, said Iraq was close to signing the agreement with the
American company and its venture partner PetroChina.
But
negotiations subsequently became protracted over contract conditions and
escalating tensions between Iraq's bigger neighbor Iran and the United States,
Baghdad's two main allies.
Talks
to reach at least an initial agreement were held up by two separate evacuations
of Exxon's foreign staff from Iraq, the first after Washington warned of
Iranian threats to US interests there, and the second prompted by a rocket
attack that appeared to target the company.
The
five senior Iraqi oil officials said the delays had forced Iraq to consider
other companies to help construct infrastructure for its offshore export
terminals.
"We
can't wait for Exxon forever. We have serious problems with our sea pipelines
and urgently need to find partners to help build new ones. Further delays could
harm our sea export infrastructure," said one of the officials, who
oversees export infrastructure in the south of the country.
The
project that Iraq is discussing with BP and Eni involves the replacement of two
old seabed pipelines, including an idled one which transports crude to the Khor
al-Amaya terminal.
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operations have been halted at Khor al-Amaya since 2017 when the pipeline
suffered ruptures and leakages and had to be shut, oil officials said. The
other pipeline is operating at partial capacity to ship crude oil to the Basra
offshore terminal.
Under
the proposed deal, BP would finance the project and Eni would handle the
procurement, engineering and construction tendering aspects, the sources said.
The
negotiations are in their final stages after the parties worked out a mechanism
to allow the British company to recover its financing payments.
"In
principle we agreed BP could recover its payments by taking oil shipments
instead of cash, just like the mechanism we're following to pay the company to
develop the Rumaila oilfields," said one of the Iraqi officials.
Eni
will be paid in cash for its work, the officials said.
The
seawater injection project, which Hyundai has been selected for, was also
originally part of Exxon's planned deal to develop Iraq's southern energy
installations.
Iraq
has no major water injection plant and needs one for its wells or would risk
losing pressure and face severe production decline, especially at its mature
oilfields. As freshwater is a scarce resource in Iraq, using treated seawater
is one of the best alternatives.
Three
of the oil officials said Exxon had costed the project at higher than Hyundai's
$2.4 billion. They said other parts of the proposed Exxon project could go to
other companies if they offered lower costs, including a project to build
additional crude storage.
The
Hyundai deal, announced by the state-run Basra Oil Co, still requires the final
approval of the oil ministry. One of the officials said the agreement would be finalized
before the end of year.