A Review of the Nigerian Energy Industry

Iraq: KRG payments enough to keep IOCs hopeful

11 September 2015, News Wires – International oil companies operating in Iraqi Kurdistan received a rare boost this week when the financially-strapped autonomous region ended a prolonged payment drought by offering them $75 million.

IraqIt was the first such payment since December, when the Oil Ministry of the Kurdistan Regional Government (KRG) paid out a similar sum to companies operating the Tawke, Taq Taq and Shaikan fields that account for the majority of Kurdish oil production.

The main beneficiaries are Norway’s DNO, UK-listed Genel Energy and Gulf Keystone Petroleum, which operate the three fields, respectively. The cash injection could restore some optimism among the three leading Kurdish operators, but they are a long way from celebrating the end of the payment problems, exacerbated by the collapse of the oil market, the KRG’s bruising oil dispute with Baghdad and the need to finance a costly war against the so-called Islamic State.

A recent escalation of the conflict between Turkey and the Kurdistan Workers Party (PKK) is a further setback to KRG’s finances as the rebels have frequently targeted the main Kurdish oil export pipeline via the Turkish territory.

Faced with myriad threats, the KRG has never fully respected the contractual terms set out in its production sharing contracts with the international oil companies and paid them only on an ad hoc basis.

The Kurdish government has struggled to pay even the salaries of its civil servants amid falling revenues.

It was therefore forced to resort to independent oil sales in mid-June after cutting allocations to Iraq’s state oil marketing company Somo in the ongoing tug-of-war over export rights and budget payments.

Subsequently, the KRG’s Oil Ministry, acknowledging the crucial role of international oil companies in providing it with its revenues, pledged to pay them on a monthly basis from September.

This first payment — though welcome in view of mounting problems for the producers — is a modest sum compared to the well over $1.6 billion the KRG owes DNO, Genel and Gulf Keystone.

But the promise of more to come is enough to keep them operating in the beleaguered region for now.

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