As Iraq seeks to reduce production costs, Kurds reach deal to export Kirkuk oil


ERBIL, Kurdistan Region — Iraq’s deputy oil minister, Fayadh al-Nema, has said Baghdad will pay $2 billion in arrears to foreign oil companies operating in the country’s south.

Major international oil companies like BP, ExxonMobil and Royal Dutch Shell operate there under service contracts and are paid a fixed dollar fee for additional volumes of oil they produce. Such agreements have cost Baghdad dearly given the sharp decline in oil prices.

This has led them to call upon these companies to use the money they receive to develop the fields they are operating to necessitate selling oil at crude prices.

“The new amended agreement will help to prevent inflating production costs and getting Iraq in debt,” Nema explained to Reuters.

Additionally investing companies will raise production rates at Artawi and Nahr Bin Umar fields and build-up infrastructure there. Extra revenue from raised output will be put towards paying off Baghdad’s debt Nema explained.

Nema believes that the companies operating costs will be reduced if they give drilling operations to Iraq’s national drilling firm. Additionally replacing foreign workers with locals would be more beneficial to Baghdad.

He also hopes that by the middle of the year Iraq will reach a deal with both ExxonMobil and PetroChina to invest in the “Integrated South Project”. A project aimed at building more pipelines, storage facilities along with a seawater supply project which will bring water from the Persian Gulf to assist oil recovery operations.

Also Iraq is currently talking with foreign engineering companies about the prospect of building a new offshore oil port with an export capability of 2.5 million barrels a day. Already, Nema said, “We have picked the ideal location for the new port that will ensure we have all the flexibility needed in shipping additional oil.”

In other oil-related news the Kurds have consolidated their control over Kirkuk’s oil by agreeing to sell oil pumped from Kirkuk province. One of the so-called disputed territories that came under complete Kurdish control after the Iraqi Army fled Islamic States’ advance across Northern Iraq in the summer of 2014.

Kirkuk crude is exported along with oil pumped from the rest of the Kurdistan Region through the Kirkuk to Ceyhan oil pipeline. Kirkuk’s governor Najmaldin Karim told Bloomberg on Wednesday that $10 million per month made from the sale of this crude will be placed in a bank account for his province.

However exports remain halted for the time being following the sabotage of part of that pipeline in the troubled southeastern Turkey last February 17.