Iraq Asks Oil Companies to Cut Spending After Drop in Prices

  • Lower spending for 2016 must not affect production in 2015
  • Letter sent to oil companies asking for 2016 budgets

Iraq asked oil companies to reduce their 2016 spending plans in the country by Sept. 30, citing lower oil prices and government revenue.

The reduced budgets shouldn’t affect 2015 production, Abdul Mahdy Al-Ameedi, director of licensing at Iraq’s oil ministry, said by phone Tuesday, citing a letter that the ministry sent to companies. Iraq is now producing more than 3 million barrels a day, he said.

“We’ve asked them in a letter we sent them to take into consideration the drop in oil prices and the low revenues of the government that may not cover their investments,” al-Ameedi said. “There was a stipulation that this investment reduction must not affect oil output from the fields that was in the 2015 schedule.”

OPEC’s second-largest crude producer is facing a slowdown in investment due to lower oil prices while fighting a costly war on Islamist militants who seized a swathe of the country’s northwest. The nation’s output will start to decline in 2018, Morgan Stanley said in a Sept. 2 report, reversing its forecast for higher production every year to 2020.

Government revenue

Iraq, with the world’s fifth-biggest oil reserves, needs to keep increasing crude output because lower oil prices have curbed government revenue. Oil prices have slumped more than half in the past year as the Organization of Petroleum Exporting Countries defended market share against booming production in the U.S. Brent crude, a global benchmark, has dropped 19 percent this year.

Iraq’s oil revenue was $3.87 billion in August, down 20 percent from July, due to lower oil prices and reduced shipments overseas, the International Energy Agency said this month. Attacks and theft along the northern pipeline to Turkey reduced production to 4.13 million barrels a day from a record 4.2 million barrels in July, it said.

Iraq owed international oil companies about $9 billion for work done in 2014 and about $18 billion this year, the IEA said in April.

The Persian Gulf nation reached agreements over the last two years with companies including Exxon Mobil Corp., BP Plc and Royal Dutch Shell Plc to reduce production targets at several of its biggest oil fields, including Rumaila, West Qurna-1 and Majnoon. Political tensions, violence and infrastructure issues have slowed Iraq’s recovery in the past few years, prompting the government to decrease its total long-term production goal to 6 million barrels in 2018 from an original 12 million barrels a day.

BP Plc cut its 2015 budget for Iraq operations by $1 billion to $2.5 billion in January, a person with direct knowledge of the matter said. Spokesmen from
Royal Dutch Shell Plc, BP Plc, and ENI SpA, declined to comment about the oil ministry letter.

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