Exxon Mobil and Iraqi Kurdistan officials visited an oil exploration block caught in a dispute between Baghdad's central government and the autonomous Kurdish region, and discussed building a camp there, a local official and sources say.
Talks at the Qara Hansher block between an Exxon executive and a top Kurdistan oil official could provoke Baghdad at a sensitive time for the Arab-led central government and the self-ruled Kurdish enclave in their feud over oil and land rights.
Since it signed for six oil blocks with Kurdistan in 2012, Exxon has been at the centre of the growing disagreement between Baghdad and Kurdistan that threatens to fracture the OPEC member's uneasy federal union a year after U.S. troops left.
The visit came as Exxon weighs whether to stay or pull out of its huge West Qurna oilfield in the Iraqi south or keep its Kurdistan fields. Iraqi and Kurdish officials have both suggested Exxon will side with them.
The Qara Hansher field, where the meeting took place on 30 January 2013 just north of Kirkuk, sits in the swath of disputed territories, where both regions claim jurisdiction and where Iraqi Arab and Kurdish troops have reinforced positions in a tense standoff since 2012.
"In the meeting we discussed the work of Exxon Mobil in Qara Hansher block and we discussed how to facilitate the company's work," Avesta Sheikh Mohammed, the local Kurdish major of the area. "The Kurdistan Regional Government has all the right to sign oil deals to develop energy resources."
An Iraqi oil official and a Kurdistan oil official confirmed the meeting had taken place to talk over building a camp in the block in the low hills.
No work or drilling has started at the Qara Hansher block - whose name means "black fig" in Kurdish - and the talks were for an initial site, the sources said.
Qara Hasher shows the complications of working in the disputed territories. Before the 2003 invasion that toppled Saddam Hussein, Qara Hansher was part of Kirkuk. Baghdad still considers it part of Kirkuk, but the Kurds claimed it as part of their region and the mayor was apppointed by the Kurdistan Regional Government.
Baghdad says oil deals signed with Kurdistan are illegal and warned foreign companies they risk losing their agreements in Iraq's southern oilfields if they develop Kurdistan fields. But fields in the disputed territories are more complicated.
Industry sources have said Exxon is considering concessions from Baghdad to keep staying at the $50 billion West Qurna.
One Iraqi oil official said the U.S. major may be trying to smooth relations with Kurdistan with the block visit after the company's top executive meet with Iraq's Prime Minister Nuri al-Maliki.
"If Exxon visited the block that does not mean it will actually start upstream operations anytime soon. I think they are comforting the Kurds, saying they won't abandon them," a senior Iraqi oil official said. "Let's not jump to conclusions, let's wait and see."
AUTONOMY AND OIL
Autonomous since 1991 with its own regional government and armed forces, Kurdistan says that the federal constitution enshrines its right to develop its oilfields.
The region is steadily developing more energy autonomy, but still relies on the central government for a share of the national budget from oil revenues.
Since Exxon entered Kurdistan, tensions between Baghdad and Kurdistan have increased, but the U.S. major's move also opened the door for other large foreign companies such as Chevron , France's Total and Russia's Gazprom Neft to sign up.
Chevron recently added a third block to its assets in Kurdistan.
Iraq's oil minister on 1 February 2013 said during the most recent meeting with Exxon, the government had made clear once again that the U.S. company must decide between the two regions.
"Exxon Mobil cannot work in the two fields at the same time," Oil Minister Abdul Kareem Luaibi said.
International oil companies have been prepared to take that risk in return for Kurdistan's better contract terms, security and an easier working environment, as opposed to the bureaucracy and infrastructure hurdles hampering southern oil projects.
The oil dispute has been accompanied by an increase in military tensions between the two regions.
Last year Iraqi national army and Kurdish Peshmerga forces both sent troops to reinforce their rival positions around towns dotted along the disputed territories, including the sensitive ethnically mixed town of Kirkuk.
For more information about related Opportunities and Key Players visit Iraq Oil and Gas Projects