UK's Genel scales back drilling in Iraq's Kurdish region after delayed KRG payments

Dubai — London-based Genel Energy said Thursday it has scaled back drilling in the semi-autonomous Kurdish region of northern Iraq following delayed payments by the Kurdistan Regional Government, adding to the list of companies in the area hit by the coronavirus outbreak and oil price crash.

"Payments for production in October and November 2019, due in January and February 2020, have not been received," Genel said in a statement. "The KRG continues to state the importance of ongoing payments to oil companies, and we expect the government to deliver on this promise."

Genel said drilling activity at Tawke have been scaled back and the Qara Dagh-2 well spud set for Q2 is likely to be delayed. The company on Wednesday warned of potential further scaling back of operations in the Kurdish region, where it expects its 2020 production target of 35,410 b/d to be "impacted" by recent spending cuts.

Genel's warning follows that of its Norwegian partner DNO in the Tawke license where the UK company has a 25% stake.

DNO said on Wednesday it faces delayed payments from KRG and its operations in the region are being curtailed by the virus, which will lead to a drop in production from several fields. Production at the Tawke and Peshkabir fields is already set to dip below 115,000 b/d as the number of active drilling rigs will drop to two by the end of March from six at the start of 2020.

The companies joined Gulf Keystone in noting output roadblocks at their Kurdish operations.

Tight restrictions

The Bermuda-based company, which operates the Shaikan field, said Monday it had suspended drilling due to tight restrictions on movement of personnel related to coronavirus prevention measures.

It added that its planned expansion to 55,000 b/d by Q3 from 38,000 b/d currently, may be difficult to meet.

Genel said its operations at Tawke and other fields are likely to be impacted in 2020.

"COVID-19 is impacting the ease of operating in the Kurdistan region of Iraq. Our producing operations are currently continuing with a reduced staff, but further activity is under review," it said on Thursday.

Nonetheless, the company said it could weather the oil price crash due to its low cost of production and net cash position of $100 million. Genel said it can still generate excess cash at "a sustained oil price of $40/b."

"Our cost of producing a barrel of oil in 2020 is expected to be around $3, which is among the lowest in the world," the company said. "We have a net cash position of almost $100 million and flexibility on capital expenditure, allowing us to spend appropriately to the external environment and balance the maximization of our cash flows with investment in growth."