Why is Iraq Paying Exxon With Oil?

Exxon Mobil (NYSE:XOM) has reached an agreement with Iraq to be paid in oil for work it does on the West Qurna-1 oilfield. The deal comes after months of negotiations over contract terms. BP (NYSE:BP) and Italy’s Eni, which lead the Rumaila and Zubair oil projects in Iraq, signed up to government’s oil sales agreement from the outset, but Exxon and minority partner Royal Dutch Shell (NYSE:RDS.A) held out as they sought to tie up some loose ends in the contract.

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Foreign oil companies involved in Iraq’s oil expansion generally prefer to be compensated for capital expenditure and service fees in oil because cash payments are more complicated to arrange. Now the parties have reached an agreement in which they will be paid in crude. Exxon and Shell spent $910 million on West Qurna-1 last year, and were repaid $470 million in cash.

According to an Iraqi oil official, though the parties have come to an agreement, nothing is yet in writing. “Exxon asked us to rephrase some of the wording, which in general will not affect the provisions of (State Oil Marketing Organization) SOMO’s oil export agreement,” the official said.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com