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The semi-autonomous Kurdistan Regional Government (KRG) says that increased oil sales will allow it to begin making regular monthly payments to the oil companies that export crude from the region in northern Iraq.
The KRG’s Ministry of Natural Resources in Erbil said in a statement on Aug. 27 that between $75 million and $100 million of the revenue from its direct crude oil sales would be set aside for payments to international oil companies, which are referred to as IOCs. They include Oslo-based DNO and Genel Energy, with headquarters in London.
“Regular payments will allow the exporting companies to cover their ongoing expenses and plan for further investment in the oilfields, which will in turn boost production,” it said. “As oil exports rise in early 2016, the KRG envisages making additional revenue available to the exporting IOCs to enable them to begin to catch up on the past receivables due under their production-sharing contracts.”
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Making scheduled payments has been difficult for the KRG because the drop in oil prices since summer 2014 have cut into its revenues and because Iraq’s central government in Baghdad has greatly reduced its revenue-sharing payments to the KRG.
As a result, the KRG has been sending reduced payments to Baghdad’s State Organization of Marketing Oil (SOMO). The regional government’s statement said such measures were essential in a region with a single source of revenue.
“Crude oil export is the principal revenue earner for the Kurdistan region and helps to pay civil service salaries, maintain vital government services and defend the region against Islamic State terrorism,” the KRG statement said, and it expressed sympathy for the companies exporting its oil.
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“With the steep fall in the price of oil, it is difficult for the international oil companies to sustain oil export at current levels without receiving some of their financial dues on a predictable basis,” the statement said. “Regular payments will allow the exporting companies to cover their ongoing expenses and plan for further investment in the oil fields, which will in turn boost production.”
The announcement had an immediate impact on some of the companies that are owed money by the KRG. The value of stock in Genel and Britain’s Gulf Keystone Petroleum rose by as much as to 18 percent in early trading Thursday, while DNO rose by nearly 11 percent.
Gulf Keysone CEO Jon Ferrier responded positively to the KRG announcement. “We are confident that our host government will be able to deliver on their recent pledge to establish a regular payment cycle for our crude from next month, and will start addressing the amount owed in arrears from 2016,” he said.
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The KRG is defying opposition by Iraq’s central government to independent exports from the region, shipping its oil, without Baghdad’s blessing, to several countries, including Cyprus, France, Israel and Italy.
KRG spokesman Safeen Dizayee said the exports are expected to rise by 100,000 barrels per day to 650,000 barrels per day by year’s end, and that shipments to other countries may reach 1 million barrels a day if Erbil can settle its debts with the exporting companies.
By Andy Tully Of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com