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Pipeline Attack Highlights Payment Problems In Iraqi Kurdistan

The Norwegian oil company DNO says the bombing of a pipeline from Iraq to Turkey didn’t interrupt production at its key Tawke field in Iraqi Kurdistan because workers were able to divert the crude to local customers.

The attack in Turkey’s southeastern province of Sirnak halted the flow of oil northern Iraq along the pipeline from Kirkuk in northern Iraq to Ceyhan, a port city on Turkey’s Mediterranean coast, Turkish Energy Minister Taner Yildiz said July 29.

But output from the Tawke field “continued uninterrupted during this week’s shutdown of the Kerkuk-Ceyhan pipeline in Turkey, given the flexibility to redirect volumes from exports to local sales,” the company said in a statement July 30.

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Ankara has blamed the bombing on the Kurdish Workers Party, which is known by its Kurdish initials PKK. Turkey says it’s affiliated with the Sunni Muslim militant group that calls itself the Islamic State and also is known as ISIS or ISIL.

Instead of suspending production at Tawke after the pipeline bombing, DNO said it delivered about 77 percent of the field’s oil, originally meant for the pipeline, to the semiautonomous Kurdish Regional Government (KRG) at Faysh Khabur, Iraq, on the border with Syria, and sold 20 percent to the local market.

Redirection is becoming commonplace among oil companies in Iraq’s Kurdish north. DNO, for example, uses the pipeline and tanker trucks to export the oil it produces out of Iraq and is supposed to be paid a commission for the work by the KRG. However, the KRG has been slow in paying.

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Besides DNO, affected oil companies include Genel, based in Ankara, and Britain’s Gulf Keystone. They have begun selling an increasing amount of oil to local customers, who pay less than the KRG, but at least they pay in advance.

DNO says the Kurdish authority now owes it between $500 million and $1 billion. The KRG says it is short of cash because budget cuts by Iraq’s central government in Baghdad.

The 2015 Federal Budget Law agreed to by Baghdad and the KRG limits the Kurds to export no more than 250,000 barrels of oil per day through Turkey. In return, Iraq’s State Oil Marketing Co. would pay the KRG $500 million a month to buy an additional 150,000 barrels of Kurdish oil.

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But on July 6, the KRG issued a statement saying its shipments by pipeline to Turkey are more than twice the amounts permitted by the terms of the budget. It cited “the difficult economic situation facing the region has been exacerbated by the partial payments made to the KRG by the federal government.”

This year, DNO says, it has been selling oil for between $30 and $35 per barrel, splitting the revenues equally with the KRG. Previously the KRG claimed 70 percent of the income, but despite the increased share for the company, DNO said it’s still negotiating with the KRG about the promptness of its payments.

“In the interim,” the company said, “in line with other operators, DNO has curtailed new capital investments and is considering further cutbacks in operating costs.”

By Andy Tully of Oilprice.com

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