International oil companies extracting oil from Iraqi Kurdistan are facing irregular payments from the region's semi-autonomous government.
The Kurdish Regional Government (KRG) missed July and August payments to Gulf Keystone Petroleum Ltd., the company's CEO Jon Ferrier told Bloomberg in a phone interview.
"We do not know why we haven't been paid," Ferrier said. "We're obviously in a close dialogue with the ministry and we're working on those payments."
In June 2015, the KRG generated monthly oil revenues of $800 million after it decided to export oil independent of Baghdad. However, profits have fallen to roughly $350 million in August, partly owing to the weak crude market after the January 2016 price drop.
In 2014, drillers saw erratic payments from the regional government because it began diverting resources to the fight against the Islamic State.
The KRG did not immediately respond to Bloomberg's request for comment.
Unreliable payment schedules represent "the biggest risk" for oil companies operating in Iraqi Kurdistan, Stephane Foucaud, an analyst at FirstEnergy Capital LLP, said.
"Until the oil price recovers, the situation is complicated," Foucaud told Bloomberg in an e-mail. "If international E&Ps do not get paid, they will probably reduce" investments.
Gulf Keystone has been delaying planned investments due to the payment irregularities, according to the company's CEO.
Ferrier said his company wants to increase the flagship Shaikan field's production to 55,000 bpd from 33,000, but such an investment would require a regular payment cycle.
Oil contracts in Iraq are structured so that oil companies get reimbursed by the government for many of the costs of producing oil. This means that the firms need to be certain that they will receive payment before spending large sums of money on new investments.
In 2015, Baghdad sent requests to oil companies to lower spending budgets because the government would have been unable to pay for them.
This year, Iraq's freshman oil minister Jabbar al-Luaibi sent a letter to several foreign oil companies, asking them to pursue new production projects.
"In light of the current environment of the oil price and its forecast in the next year[s], we [the Ministry of Oil and contractors] should be prepared to live with the prevailing circumstances," the letter said, according to S&P Global Platts. The minister wants them to "modify and adjust, accordingly, the field enhanced redevelopment plans/final development plans."
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on… More