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Thursday, 09/22/2016 11:59:31 AM

Thursday, September 22, 2016 11:59:31 AM

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Iraqi Kurdistan’s Payments to Oil Drillers Fall Behind Again

Angelina Rascouet
September 22, 2016 — 7:38 AM MST

Gulf Keystone yet to receive July, August payments from KRG

Erratic payments hinder investment to increase production

International oil companies operating in Iraqi Kurdistan are once again facing irregular payments from the regional government, jeopardizing investment that could increase production.

Gulf Keystone Petroleum Ltd. has yet to receive payments from the Kurdistan Regional Government for July and August, Chief Executive Officer Jon Ferrier said in a phone interview today. “We do not know why we haven’t been paid,” Ferrier said. “We’re obviously in a close dialog with the ministry and we’re working on those payments.”

The last payments disclosed to investors by Genel Energy Plc and DNO ASA, two other drillers in the northern Iraqi region, are for June crude sales, according to regulatory filings. Genel declined to comment and DNO didn’t immediately reply to an e-mail.

The KRG didn’t immediately reply when asked for comment.

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The Kurds generated $800 million a month from oil sales after deciding in June 2015 to export oil independently of the central government in Baghdad but revenue dropped to about $350 million in August, due partly to lower crude prices. Drillers came under pressure last year because of erratic payments from local authorities, who diverted resources toward fighting Islamic State after the militants took over large swathes of Iraq in 2014. Regular payments resumed last September.

The return of erratic payments is “the biggest risk” for oil companies operating in the semi-autonomous region, according to Stephane Foucaud, an analyst at FirstEnergy Capital LLP. “Until the oil price recovers, the situation is complicated,” Foucaud said by e-mail. “If international E&Ps do not get paid, they will probably reduce” investments.
Reduced Investment

Gulf Keystone’s Ferrier said he wants to invest in the company’s flagship Shaikan field in order to bring production from the current 33,000 barrels a day level to 55,000. Yet that investment will only be made possible with a regular payment cycle, he said.

Speaking last week at the Pareto Oil & Offshore conference in Oslo, Haakon Sandborg, the chief financial officer of DNO, said that payments had “slowed down a bit over the last months,” yet DNO was “fully confident” these would resume.

Sandborg also said that DNO, which is currently boosting investments in Kurdistan, was making changes to the near-term drilling schedule to account for the delay.