Petrochina's Deal With ExxonMobil on Iraq Is a Win-Win

On Thursday, PetroChina announced a deal with ExxonMobil to acquire a 25% stake in the West Qurna-1 oil field project in southeastern Iraq. With an estimated 43 billion barrels of recoverable reserves, West Qurna is estimated to be the second largest oil field on the planet. Reports also say that ExxonMobil sold an additional 10% stake to Indonesia's state oil company, PT Pertamina.

With these moves, ExxonMobil's ongoing divestment in West Qurna is over half completed. PetroChina, for its part, is now the single largest player in this huge field. The two companies are going in opposite directions, but in the grand scheme of Iraq's complicated internal political situation, the deal stands to benefit both parties greatly.

Iraq is a lot more than just this one (admittedly enormous) field, and ExxonMobil has an opportunity for much better margins dealing with the Kurdistan Regional Government on smaller northern fields. When ExxonMobil made it clear it was going this route, it sparked major threats from Iraqi officials, who told them to choose between Kurdistan and West Qurna. Juggling politics between the autonomous Kurds and the Iraqi central government is tricky business, and ExxonMobil has chosen the relative calm of Iraqi Kurdistan over the higher profile southeast.


Kurdistan enjoys close ties with the U.S. (former U.S. Ambassador Peter Galbraith helped negotiate the Iraqi constitution on Kurdistan's behalf to secure them friendly terms on oil revenue sharing), and ExxonMobil is in a great position to take advantage of these fields, with easy access to Western markets by way of Turkey.

West Qurna and PetroChina
PetroChina, on the other hand, gains major credibility by taking such a big portion of the responsibility for the West Qurna field, and beyond the scope of this single deal, it sets them up as a major player for other high-profile developments that may come along in the future. This is particularly important if diplomatic rapprochement brings Iranian oil fields back online and the Iranian Oil Ministry needs big (likely non-American) companies to help get them back up to speed.

In becoming the single largest company involved in developing one of the world's largest oil fields, PetroChina officially graduates in the minds of many from a secondary player into a credible global power, on par with Total SA and Royal Dutch Shell , both of which were high on the list of bidders for big Iraqi projects but now find themselves smaller players in the oil-rich southeast when compared to PetroChina.

A win-win
In selling out, which is still an ongoing process, ExxonMobil doesn't lose its own status as a major candidate for any development deals, but it will free itself from any leverage the Iraqi central government may wish to exert on it for its work in Kurdistan. For PetroChina, the West Qurna field is no burden at all, but rather an opportunity to prove its maturation into one of the world's big players in oil production.

Big deals like this lend themselves to debating winners and losers, but in this case both sides appears very well served by the deal, and could both reap benefits beyond a single transaction.

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The article Petrochina's Deal With ExxonMobil on Iraq Is a Win-Win originally appeared on Fool.com.

Fool contributor Jason Ditz has no position in any stocks mentioned. The Motley Fool recommends Total SA. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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