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Iraq considers amending contracts

as non-compliance continues

iraQ IRAqI Oil Minister Ihsan Abdul Jabbar said this of its commitment to reduce output by 1.06mn
week that Baghdad is considering amending bpd to 3.6mn bpd, with around 300,000 bpd
contracts at high cost fields as it seeks to control coming from ‘natural’ reductions at from Hal-
expenditure amid production cuts. faya and Gharraf as a result of cancelled orders
Speaking to state-run media outlet Al-Sabah, and limited storage. This left output at more
Jabbar noted that the Federal Government is than 650,000 bpd above its OPEC+ quota and
keen to cut costs at fields producing heavy, sour following an unceremonious dressing down by
crude grades to prioritise investments in low- the cartel during a recent meeting, Baghdad is
er-cost assets with lighter, more valuable output. expected to make up for past non-compliance
Iraq has struggled to pay IOCs for their work going forward. With Saudi Arabia no longer
to develop oilfields, with their fees fixed and oil willing to shoulder the burden and cut on behalf
prices having fluctuated wildly in recent years. of serial offenders, Iraq and other laggards could
Average per barrel extraction fees in southern be punished by another step drop in oil prices.
Iraq, which is home to the majority of the coun- A note by Rystad Energy this week said that
try’s most productive assets, are $1-2 per barrel Iraq is even considering asking the Kurdistan
excluding CAPEX and $4-6 per barrel including Region of northern Iraq to contribute by cutting
CAPEX. This puts the region on a par with Saudi output by 100,000 bpd, though added that this is
Arabia, and among the cheapest in the world. highly unlikely.
Meanwhile, the average remuneration fee Indeed, Jabbar said that output from the
per barrel of non-heavy oil produced over an the semi-autonomous area should not exceed
initial threshold level, is less than $6 per barrel. 370,000 bpd, amid ongoing talks between Bagh-
Long-Term Service Contracts (LTSCs) awarded dad and the Kurdistan Regional Government
to IOCs during the first two bidding rounds fea- (KRG).
ture per barrel fees ranging from $1.15 (Lukoil at Federal and Kurdish output are combined
West qurna 2) to $5.50 (GazpromNeft at Badra). for OPEC reporting purposes, though control of
While these fees offer a comparatively meagre fields, infrastructure and production levels have
return for developers, Baghdad has still strug- been a political hot potato for years, and have yet
gled to pay, with the country’s net income per to be formally resolved.
barrel having been eroded by weak oil prices. As such, IOCs have been called upon to cut
output from their southern fields by 350,000
oPeC laggard bpd, while Basra Oil Co. (BOC), which is
It is perhaps little surprise that Baghdad is a per- responsible for the southern region, is expected
petual laggard in terms of complying with OPEC to reduce output by the remaining 300,000 bpd.
cuts, being all but completely reliant on oil reve- With the LTSCs already very marginal for the
nues to prop up state coffers. IOCs, renegotiating terms is perhaps the only
In May, Iraq was only able to implement 46% way to achieve such sizeable reductions.™

P8 www. NEWSBASE .com Week 26 01•July•2020