Sharistani rebuffs KRG oil export gesture

Statements render compromise with KRG over oil payments unlikely

Iraq's Deputy Prime Minister for Energy Hussein Al-Shahristani. GETTY IMAGES
Iraq's Deputy Prime Minister for Energy Hussein Al-Shahristani. GETTY IMAGES

Iraq’s Deputy Prime Minister has complained that the Kurdish region is only pumping around 116,000 barrels of oil a day through the central Kirkuk pipeline, an early indication that a “goodwill initiative” launched by the Kurdish regional government at the start of the month may fail to a result in the resumption of payments to the region.

According to a report from Reuters, Hussein al-Sharistani, the Iraqi central government’s most senior oil official, said that not only should the Kurdish region be pumping the 175,000 bpd they are mandated produce under the terms of the current federal budget, but also produce additional crude to compensate for the period when the KRG halted exports in protest over a lack of payment.

"Until today, we have received a total of 116,000 bpd of crude oil delivered from the Kurdistan region. This quantity is below the agreed amount of 175,000 bpd in the budget," Shahristani told reporters.

They should pump more than that total to compensate for the period of time when they halted exports," he added. Sharistani also wants audits should also be carried out on the companies the Kurdistan government says must be paid.

Sharistani’s remarks suggest the central government is not going to pay the Kurdish regional government for any lower amount of oil they export via the Kirkuk pipeline, much less cough up around $2 billion that the KRG says should be given to them and regional oil companies in back payments.

The KRG halted exports in April, resuming them earlier this month in a well-publicised push to obtain back payments for the oil companies producing oil in the region who are owed hundreds of millions of dollars.

The move came at a time when the Kurdish region feels strong on oil policy, have seen majors Chevron, Total and Gazprom Neft take up interests in exploration blocks in recent weeks.

Kurdish natural resources minister Ashti Hawrami, in published correspondence with the companies sending Kurdish crude to the Kirkuk export pipeline, says that if back payments due to the companies under a bilateral compromise struck in 2011 are not received by the end of the month, exports will be halted again.

If payment was received, Hawrami said the region would pump 200,000 bpd.

Hawrami first requested a more open ended commitment from the companies – Genel Energy, DNO International and KAR Group – but was rebuffed on concerns from each company that they would not be paid.

This indicates that the oil companies are not willing to risk the much larger volumes of crude required, and so once again the KRG and Sharistani may be at an impasse.

The situation will pressurise the KRG to secure a pipeline route for the region’s oil, to ensure oil companies operating in the region can be paid and that development in the region’s industry can continue, an early sign that the balance of influence between oil companies and the regional government on matters of oil policy and independence may be shifting.

Sharistani is also wrestling with the entry of Total and Gazprom Neft into the Kurdish region, with both companies lured by production sharing exploration contracts which offer significant potential upside, despite the current lack of a physically or politically secure export route for the region’s oil.

However, instead of taking the opportunity of a press conference to chastise Total and Gazprom Neft, Sharistani was reflective on the relative failure of the fourth bidding round for oil and gas blocks.

"We admit the service contract terms are tough and are squeezing companies. For (these) reasons, the last auction was not so successful," he admitted, adding that the oil ministry is "studying a new model of contract for other oil fields because the first oil fields (that were auctioned) were discovered and well-known."

The Deputy Prime Minister is, however, applying the government's blacklist policy to Total at least, whcih has a minority non-operating stake in the Halfaya field.

While not commenting on Gazprom, Sharistani says the oil ministry "requested [Total] to withdraw from this field, and it has been given a certain period to end this case by selling its share to another company or by ending the contract with Kurdistan."

"Total may well give up their interest, which is only a non-operated minority," says Robin Mills, head of consulting at Manaar  Energy COnsultants. "But I think Gazprom will try to stick it out and enlist Putin to help if required. They are operator and the Badrah field, especially being on the border, is important to Baghdad."

The blocks are slated to be reoffered under more generous terms.



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