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Iraq Agrees to Pay Companies Pumping Oil in Kurdistan

The Iraqi government will pay foreign oil companies producing in the country’s northern Kurdish region under a deal reached to resume crude exports from the area, Oil Ministry spokesman Asim Jihad said.

The ministry in Baghdad will pay producers including DNO International ASA and Addax Petroleum Corp., by way of the semi- autonomous Kurdistan Regional Government’s Natural Resources Ministry, Jihad said in an interview last night. He gave no further details about the payment arrangement.

Oil exports from Kurdistan began in June 2009 and halted in October of that year after a dispute erupted between the regional and central governments over money generated by the sales. Foreign companies operating in the Kurdish region are still owed between $400 million and $500 million in unpaid revenue, Natural Resource Minister Ashti Hawrami said Jan. 17.

Iraq, home to the world’s fifth-biggest oil reserves, needs foreign investment and expertise to help ramp up energy exports and pay to rebuild an economy shattered by years of conflict, economic sanctions and sabotage.

Iraq has signed 15 gas and oil licenses since the 2003 U.S.-led invasion that ousted the regime of former President Saddam Hussein. It expects current oil output to rise to more than 3 million barrels a day by the end of this year, compared with 2.4 million barrels a day in December, and is counting on exports from Kurdish fields to contribute to the increase.

February Start

The national Oil Ministry agreed to pay the companies in Kurdish areas as part of an accord that Iraqi Oil Minister Abdul Kareem al-Luaibi signed with Hawrami on Jan. 17. The two sides are allowing for oil exports from the Kurdish province to start again on Feb. 1, Jihad said.

“Nobody benefits from the current situation, including the central government, the Kurdistan province and the foreign companies working there,” said Falah al-Khawaja, an independent petroleum and engineering consultant on Iraq. “The important factor for all parties concerned is to increase exports, and this agreement is a first step toward resolving tensions.”

The agreement specifies that Kurdish crude oil and naphtha would flow at a combined rate of 100,000 barrels a day through a pipeline from northern Iraq to the Turkish terminal of Ceyhan on the Mediterranean Sea, Jihad said. He did not provide details of the respective volumes of oil and naptha to be exported.

The agreement requires that Kurdistan produce an additional 50,000 barrels a day of crude to feed its own refineries and help meet local demand, the spokesman said.

Crude Halted

DNO, Addax and other companies halted crude exports after Iraq’s central government stopped reimbursing them for expenses, amid the escalating dispute between the ministry in Baghdad and the provincial government.

The central government considered that production-sharing agreements between Kurdish authorities and foreign companies were invalid. The accords allocate to foreign companies a share of the oil they produce, in contrast to service contracts adopted by the national Oil Ministry that pay foreign producers a per-barrel fee.

Hawrami said on Nov. 30 the Kurdish government would consider making adjustments to the 38 contracts it has signed with foreign oil companies. He said these agreements would “stand” under a new Iraqi oil law that is likely to go into effect by June.

To contact the reporter on this story: Nayla Razzouk in Amman at nrazzouk2@bloomberg.net

To contact the editor responsible for this story: Maher Chmaytelli at mchmaytelli@bloomberg.net

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