Iraq to Pay $2bn in Arrears to Foreign Companies

Source: Kuwait Times 3/5/2016, Location: Middle East

Iraq will pay foreign oil companies about $2 billion in remaining arrears for 2015 this April and expects to reach an agreement over contracts by half-way through the year, the deputy oil minister said. International firms such as BP, Royal Dutch Shell , ExxonMobil, Eni and Lukoil operate in the southern oilfields under service contracts, whereby they are paid a fixed dollar fee for additional volumes produced.

Those agreements have put Baghdad’s coffers under immense strain as government revenues plunge due to slumping oil prices and Iraq is in talks with foreign companies to link the fees they receive for developing its fields to crude prices.

“The new amended agreement will help to prevent inflating production costs and getting Iraq in debt,” Fayadh Al-Nema who is in charge of upstream operations told Reuters in an interview in the southern oil city of Basra.

Nema said one way of reducing companies’ costs was to hand drilling operations over to Iraq’s state-run drilling firm, or to replace foreign workers with locals. Iraq’s output rise in 2016 will be “very modest”, Nema forecast, due to the shrinking investment budgets of foreign contractors, which are affected by the drop in oil prices.

Nema said a deal with PetroChina, ExxonMobil and other energy companies could be reached by the end of the year over investing in a project to boost output from its smaller southern oilfields. The multi-billion dollar “Integrated South Project” consists of building oil pipelines, storage facilities and a seawater supply project to inject water from the Gulf to maintain pressure and enhance oil recovery.

Investing companies will help raise production from the Artawi and Nahr Bin Umar oilfields and build energy infrastructure. Revenues from rising output from the two oilfields will be used to repay investors, Nema said.

Nema also said Iraq was working with BP to upgrade an old water injection facility in Garmat Ali, north of Basra, to provide oilfields of Rumaila and Zubair with water needed to boost output. The project is currently pumping more than 1 million barrels of water per day, with plans to increase output to 3 million. Iraq is in talks with foreign engineering companies to build a new onshore oil port to expand the country’s export capacity.

The new port will have an export capacity of 2.5 million barrels per day. “We have picked the ideal location for the new oil port that will ensure we have all the flexibility needed in shipping additional oil,” Nema said.


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