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In this May 31, 2009 file photo, an employee works at the Tawke oil fields in the semiautonomous Kurdish region in northern Iraq. The local government's exploration deal with Exxon puts it sharp conflict with Iraq's national government.

Hadi Mizban/Hadi Mizban/Associated Press

From the FT's Lex blog

There is something unseemly about the scramble for Kurdistan. Western oil companies are flocking to Erbil, capital of this semi-autonomous region of northern Iraq, to secure exploration and drilling contracts. The prize: a possible 50 billion barrels of oil, or 40 per cent of Iraq's proved reserves.

Yet Iraq remains bitterly divided. Critically, there is no agreement between Baghdad and the regions on a petroleum law and the sharing of resource revenues. Oil company bosses could be walking themselves and their investors into a legal and political minefield.

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The deal that epitomises the scramble is the $2.1-billion takeover of Kurdistan-focused Genel Energy in September by Vallares, backed by former BP boss Tony Hayward and financier Nathaniel Rothschild. Now ExxonMobil has joined the rush. The government of Kurdistan signed drilling contracts with the U.S. supermajor last month. The region is said to want to boost its oil output to one million barrels a day within five years, from 150,000 a day now.

Investors in exploration companies already established in the region stand to reap early rewards. The share prices of the likes of DNO, Gulf Keystone and Petroceltic initially jumped 30 per cent on the Exxon news. They are among some 40 exploration companies that stand to gain as producers move in. With Iraq set to become the main source of new oil supplies in the next 25 years, a flood of investment is already under way.

But Iraq's hard realities must be handled with sensitivity. Exxon's agreement with Erbil has angered Baghdad. It regards such Kurdish deals as illegal and has threatened to cancel existing contracts between Exxon and Iraq. Shell has withdrawn from contract talks with the Kurdish government to avoid the same fate. Exxon's move makes an oil law for Iraq all the more urgent. The majors should not play one side against the other, however. Until Iraqis sort out their future, the risk for oil company investors is that fools rush in.

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