The Kurdistan Regional Government (KRG) in Iraq said on Monday that it would start making regular monthly payments to international oil companies, including towards billions of dollars in arrears.
The deal will mean that initially that its payments to the oil companies will be lower than the interim payments it has been making since last September. But the move was still welcomed by the companies.
The KRG has paid the operating companies a gross US$75 million a month since last September, for a total of $300m through the end of the year.
Yesterday, the KRG promised that “as of January 1, 2016, the Kurdistan Regional Government’s monthly payments to the producing international oil companies will be based on the contractual entitlements under the production sharing contract governing each licence, replacing the interim payment arrangements in place since last September.”
It added that it would make a further payment of 5 per cent of each respective monthly payment to start clearing arrears.
Among those to benefit from the new pledge is the Norwegian oil company DNO, which is 40.4 per cent owned by RAK Petroleum. It has been receiving a 55 per cent share of $30m a month interim payments as the operator of the Tawke field, for which Genel Energy has received $9m monthly for its share. Taq Taq, which is operated by Genel with a 44 per cent interest, also has received $30m monthly payments, while Gulf Keystone, which operates the Shaikan, has received $15m a month.
“This is really, really good news, as it will give clarity about the timing and quantum of payments,” said an executive at one of the operating companies.
Although at current oil prices it means the monthly payments will be about half what they have been – analysts estimate between $15m and $20m for the larger field owners – the regularity will allow them possibly to resume stalled investment.
Just two weeks ago, Genel said it would slash capital expenditure this year to between $50m and $90m, compared with last year’s $150m.
Gulf Keystone’s lack of investment at Shaikan similarly had stalled production at 40,000 barrels per day compared to a target of 100,000 bpd.
Taqa, the Abu Dhabi government-owned energy company, had delayed the start-up of its Artrush field to this year, partly due to its own cash worries. The company confirmed it expects to start that field this year, ramping it up to 30,000 bpd.
Sharjah-based Dana Gas, which is owed at least $2 billion by the KRG, is not affected by the new deal as it has a profit-sharing contract to develop the region's largest gasfields. Genel Energy shares rose 2.75 pence at 107.25 pence, Gulf Keystone gained £4.45 to £16.70 and DNO was up46 Norwegian ore at 6.21 kroner.
Follow The National's Business section on Twitter