Page 16 - DMEA Week 26

DMEA POLICY DMEA

Iraq considers amending oil contracts

as OPEC+ non-compliance continues

IRAQ IRAQI Oil Minister Ihsan Abdul Jabbar said this oil revenues to prop up state coffers.
week that Baghdad is considering amending In May, Iraq was only able to implement 46%
Iran continues to fail to contracts at high-cost fields as it seeks to control of its commitment to reduce output by 1.06mn
meet quotas. expenditure amid production cuts. bpd to 3.6mn bpd, with around 300,000 bpd
Speaking to state-run media outlet Al-Sabah, coming from ‘natural’ reductions at Halfaya
Jabbar noted that the Federal Government is and Gharraf as a result of cancelled orders and
keen to cut costs at fields producing heavy, sour limited storage. This left output at more than
crude grades to prioritise investments in low- 650,000 bpd above its OPEC+ quota, and fol-
er-cost assets with lighter, more valuable output. lowing an unceremonious dressing down by
Iraq has struggled to pay IOCs for their work the cartel during a recent meeting, Baghdad is
to develop oilfields, with their fees fixed and oil expected to make up for past non-compliance
prices having fluctuated wildly in recent years. going forward.
Average per barrel extraction fees in southern A note by Rystad Energy this week said that
Iraq, which is home to the majority of the coun- Iraq was even considering asking the Kurdistan
try’s most productive assets, are $1-2 per barrel Region of northern Iraq to contribute by cutting
excluding CAPEX, and $4-6 per barrel including output by 100,000 bpd, though the consultancy
CAPEX. This puts the region on a par with Saudi added that this was highly unlikely. Indeed, Jab-
Arabia, and among the cheapest in the world. bar said that output from the semi-autonomous
Meanwhile, the average remuneration fee per area should not exceed 370,000 bpd, amid ongo-
barrel of non-heavy oil produced over an initial ing talks between Baghdad and the Kurdistan
threshold level is less than $6 per barrel. Long- Regional Government (KRG).
term service contracts (LTSCs) awarded to IOCs Federal and Kurdish output are combined
during the first two bidding rounds feature per for OPEC reporting purposes, though control of
barrel fees ranging from $1.15 (Lukoil at West fields, infrastructure and production levels have
Qurna 2) to $5.50 (GazpromNeft at Badra). been a political hot potato for years, and have yet
While these fees offer a comparatively meagre to be formally resolved.
return for developers, Baghdad has still struggled As such, IOCs have been called upon to cut
to pay, with the country’s net income per barrel output from their southern fields by 350,000 bpd,
having been eroded by weak oil prices. while Basrah Oil Co. (BOC), which is respon-
sible for the southern region, is anticipated to
OPEC laggard reduce output by the remaining 300,000 bpd.
It is perhaps little surprise that Baghdad is a With LTSCs already very marginal for the IOCs,
perpetual laggard in terms of complying with renegotiating terms is perhaps the only way to
OPEC cuts, being all but completely reliant on achieve such sizeable reductions. ™

P16 www. NEWSBASE .com Week 26 02•July•2020