Kurdistan Oil Payment Raises Hopes for Western Energy Companies
16 October 2015 - 12:00AM
Dow Jones News
LONDON—The Kurdistan Regional Government has made its second
payment this year to Gulf Keystone Petroleum Ltd., the company said
Thursday, raising hopes for western energy businesses operating in
Iraq's northern region.
The $12 million payment to Gulf Keystone comes amid greater
optimism about the semiautonomous Kurdish government's ability to
pay oil companies, which say they are owed over $1 billion for
crude exports from the region.
Kurdistan has failed to pay the companies as it wages an
expensive fight with Islamic State and is struggling to pay its own
government workers. Adding to the woes, oil prices are down by more
than half in the past 15 months and Kurdistan is arguing with
Baghdad over oil sales.
But the increase of oil exports in recent months and the KRG's
independent sales from the Ceyhan oil terminal in Turkey have
raised enough revenue for the government to cover its domestic
budget as well as pay the oil companies, said Tony Hayward, the
chairman of Genel Energy PLC, the largest international oil
producer in the region, and former chief of BP PLC.
"I think we have turned a corner there," Mr. Hayward said in an
interview.
The lack of regular payments for oil produced in Kurdistan and
exported via a pipeline through Turkey has crimped revenues and
contributed to a drop in the share prices of the three main
Kurdistan-focused oil producers—Genel, Gulf Keystone and DNO
ASA—this year as some investors have soured on the region. It has
also held back any plans the companies may have had for selling all
or part of the companies, analysts have said.
Their stocks rallied on Thursday morning on news of Gulf
Keystone's payment. Gulf Keystone's shares rose over 6%, Genel was
up over 5% and DNO was up nearly 9%.
The three companies are owed over $1 billion, having so far
received a total of $165 million in payments this year and one last
December. Gulf Keystone is owed $117 million for its crude
exports.
Genel received $24.5 million in September from the KRG, which
doesn't cover the full amount owed to the company for oil exports.
Genel said its total arrears stood at $378 million as of June 30.
DNO said in August it was owed $829 million for exports.
Mr. Hayward said the KRG understands that oil companies won't
continue to invest if they don't get paid.
In August, the KRG said it would start regular payments from
September and would make additional payments to cover the arrears
as exports from the region start to rise in early 2016. It said it
would fund the payments from its direct crude-oil sales from
Turkey's Mediterranean terminal Ceyhan, where Kurdish and northern
Iraqi crude is shipped via pipeline.
The KRG exported an average of around 620,000 barrels a day in
September through its pipeline and continued to increase its direct
oil sales in Ceyhan, according to the Ministry of Natural
Resources. That is up from 470,000 barrels a day in August.
The KRG's Ministry of Natural Resources didn't respond to
requests for comment.
Situated in northeastern Iraq, the Switzerland-sized region is
estimated to hold 45 billion barrels of oil. Crucially that oil is
onshore and relatively straightforward to access, making it cheaper
to develop than more technologically challenging and costly
offshore fields elsewhere. It costs Genel about $2 a barrel to pump
oil from its Kurdish fields.
Kurdistan's oil has helped Iraq reach record levels of
production. According the Organization of the Petroleum Exporting
Countries, Iraq pumped more than 4 million barrels a day in
September.
Write to Selina Williams at selina.williams@wsj.com
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(END) Dow Jones Newswires
October 15, 2015 08:45 ET (12:45 GMT)
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