Chevron, BP and Exxon court Baghdad as Iraq sweetens oil terms

Summary:

Key Points

1. Major oil companies are negotiating fresh Iraqi contracts despite the US-Iran war next door,
2. Baghdad is offering terms closer to production-sharing deals, letting companies book reserves and capture price upside.
3. New and pending contracts could lift Iraqi capacity to 5.5 million barrels a day by 2030.

The latest:

Iraq’s new fiscal terms are drawing the world’s largest oil companies back to a country they largely abandoned a decade ago, with Chevron, BP, ConocoPhillips and ExxonMobil in talks or already committed, Chevron chief executive Mike Wirth said returns follow risk and that the economics now look better in Iraq.

Details:

• The terms: Baghdad is offering contracts with more in common with production-sharing agreements than the old service contracts, according to the column. The earlier model paid a small flat rate per barrel and barred companies from booking reserves on their ledgers; the new one gives exposure to rising prices and allows reserve booking.
• The capacity target: With contracts signed and those under negotiation, Iraq could raise capacity to 5.5 million barrels a day by 2030,  Before the war Iraq pumped roughly 4.5 million a day, and Baghdad has long aimed for 6 million, which would rank it second in the Middle East behind Saudi Arabia.
• The bigger ambition: Iraqi Prime Minister Ali al-Zaidi has spoken in recent months of lifting capacity to 8 million and even 10 million barrels a day beyond 2035. The column judged those targets unrealistic, arguing a 20%-30% increase would itself be an enormous achievement under current conditions.
• TotalEnergies first: France’s TotalEnergies broke the pattern three years ago as the first major to enter Iraq under improved terms, with a $27 billion multi-year investment across oil and gas fields. Chief executive Patrick Pouyanné said he had no regrets despite the war, calling Middle East oil the cheapest available.
• The Chevron deal: Chevron has signed a preliminary agreement with Baghdad covering assets once held by Russia’s Lukoil, with a final contract expected in 2027, the column said. BP signed its own contract last year and brought ConocoPhillips into the project a few months ago.
• The export problem: Iraq could face difficulty if the Strait of Hormuz remains a war zone. Baghdad already ships limited crude volumes through a bypass pipeline running north via Turkey to the Mediterranean, where tankers can load. The end of Syria’s civil war opens the possibility of a shorter westward route.
• The OPEC question: How the cartel would accommodate much higher Iraqi pumping remains unresolved. The author saw two likely outcomes: OPEC turning a blind eye to overproduction as it did with Algeria and the United Arab Emirates, or Iraq ignoring the cartel and eventually leaving it.
• Current output: Iraq is pumping well below its maximum capacity because of the US-Iran war, which nonetheless expects more crude from Baghdad in the near future.
• The history: The first opening came in 2003, after the US invasion removed Saddam Hussein, who had kept Iraq’s geological endowment largely closed to foreign firms after taking power in 1979. Majors signed deals then but left within years, concluding returns did not compensate for the risk.

Background:

Wirth spoke at the Energy Intelligence Forum in London last week, the same gathering where Pouyanné appeared. What the majors sought after 2003, and what George W. Bush and Dick Cheney had signaled, was production-sharing agreements they never received.

Between the lines:

 Baghdad is positioned to emerge as a winner of the regional crisis, attracting billions precisely while the fighting continues. The reasoning rests on facts stated above: terms that now carry price upside and reserve booking, a 2003-era grievance finally addressed, and export routes north through Turkey that reduce dependence on Hormuz. The unresolved OPEC question is the main constraint.

What’s next

Chevron’s final contract for the former Lukoil assets is expected in 2027. Watch whether Hormuz stays contested, whether a shorter westward pipeline through Syria advances, and how OPEC responds to Iraqi volumes above quota.