Oil companies operating in Iraqi Kurdistan, such as Genel Energy (LON:GENL) and Gulf Keystone (LON:GKP), have been given new clarity on the process for oil export payments.
A statement from the semi-autonomous state’s Ministry of Natural Resources has outlined plans for monthly payments to oil companies.
The Kurdistan Regional Government (KRG) says a portion of revenue from oil it sells directly will be allocated to the oil companies from September onwards. And as crude exports from Kurdistan rise through early 2016 the KRG also intends to make additional revenues available.
The initial monthly payments will allow oil companies to cover their expenses, according to the KRG, whereas the subsequent increases should allow companies to catch up on ‘past receivables’.
In London, Genel shares advanced 9.5% this afternoon to trade at 406.75p, while GKP jumped almost 20% to 34.25p.
In the statement the KRG acknowledged that the oil companies have received “hardly any” payment for production since May 2014.
Nevertheless, it recognised the patience shown by the oil companies which have maintained operations and have continued to invest in oil field expansions.
“Crude oil export is the principal revenue earner for the Kurdistan Region. But, it is also recognized that it is difficult for the IOCs to sustain oil export at its current levels, let alone increase it as planned, without receiving their financial dues,” the statement said.
“They have demonstrated their commitment to the people of Kurdistan at a time when the region has been fighting terrorism, enduring a budget shortfall from the federal government in Baghdad, and shouldering the social, political and economic burden of an influx of 1.8 million refugees and internally displaced people,” it added.
At the start of 2015 arrangements were put in place which saw the KRG export crude oil, via authorities in Baghdad, in exchange for regular payments.
But, according to the KRG, it has not been receiving its ‘monthly budgetary dues’.
“As a result, the KRG has been obliged to introduce direct crude oil sales from Ceyhan to help pay Kurdistan Region’s governmental salaries, maintain vital government services, and of course, pay the Peshmerga and other security forces who are fighting Islamic State terrorists,” the KRG added.
“Although the revenue gained from direct sales is still below Kurdistan’s 17% share of the federal budget, it is significantly higher than the amount the federal government was able to allocate to the KRG on a monthly basis.”
Crude produced in Kurdistan is been sold both domestically and by export through Turkey; the payment mechanism for the former is quite simple, whereas infrequent and inconsistent export payments have been key uncertainties for investors.
The other risks include the impact of terrorism and political uncertainties – such as the ongoing fighting against ISIS, and the more recent conflict between the Turkish military and the Kurdish PPK group.
Key oil and gas infrastructure has been disrupted in recent weeks.
DNO, the operator of Genel’s part owned Tawke field, last week revealed that before disruption to the Kirkuk-to-Ceyhan pipeline the field was producing an average of 157,000 barrels of oil per day; of that 134,000 barrels were transferred to the KRG for export while the rest was sold by DNO domestically.
Genel and DNO are also partners in the Taq Taq field.
In the first half of last month Genel told investors that between the two fields some 185,000 barrels (gross) was being exported per day, and the domestic operation accounted for 40,000 bopd.
Genel also repeated its net production forecast of 90,000 to 100,000 bopd for 2015.
Elsewhere in Kurdistan Gulf Keystone, which has had to truck its exports, has been producing in the order of 40,000 bopd.
Jón Ferrier, Gulf Keystone’s chief executive, in a statement said: “Today’s statement made by the Kurdistan Regional Government’s Ministry of Natural Resources, our host government and long-standing partner, represents a further important step towards the establishment of a regular payment cycle for Shaikan crude oil sales pursuant to the Shaikan Production Sharing Contract.”