Iraqi govt, KRG in talks on energy sector management

Dubai — Iraq's semi-autonomous Kurdistan region is in talks with the federal government about the management of its oil and gas sector, the region's deputy prime minister said Nov. 17, as Kurdistan seeks to settle a dispute with Baghdad over oil sales and revenue sharing.

"While we are very disappointed with how Baghdad continues to treat Kurdistan and how they continue to withhold our fiscal entitlements, we are continuing to work with them to reach a deal that is both fair and sustainable," Qubad Talabani told the virtual Kurdistan Iraq Economic Forum, organized by CWC Global Future Energy.

"We have expressed our readiness to cooperate on reaching a holistic agreement on oil and gas management."

Talabani emphasized that the KRG's oil contracts with international oil companies would not be changed and that the region wanted to attract more investment in the sector. Baghdad does not recognize the contracts signed between Erbil and IOCs, which are in the form of production sharing agreements.

"I think there is a much greater understanding that oil management in Kurdistan cannot be the same as oil management in the rest of the country," Talabani said. "There is a clear understanding that we have a different contractual model in the Kurdistan region. Certainly, there is a room to reach an agreement on how the oil is sold on global markets and also how revenues are distributed."

Lax compliance

Iraqi officials have in the past blamed overproduction from Kurdistan for their non-compliance with OPEC+ cuts.

Iraq's oil production, including flows from the Kurdish region, rose 6.7% in October from September, exceeding the country's OPEC+ quota after two months of compliance, official data from the State Oil Marketing Organization showed Nov. 5.

OPEC's second largest oil producer pumped 3.842 million b/d in October, above September's 3.6 million b/d and its quota of 3.804 million b/d, according to SOMO figures.

Iraq has been a habitual laggard this year in terms of OPEC+ quota compliance. It overproduced May through July and pledged to compensate for breaching its quota during these months.

Iraq is supposed to make 698,000 b/d of catch-up cuts from September through to December, divided into 203,000 b/d in September and 165,000 b/d in October, November and December.

October overproduction

Production from the federal government fields reached 3.396 million b/d in October, while output from the Kurdish region averaged 446,000 b/d, the SOMO figures showed. SOMO didn't provide September data in the breakdown.

The Kurdish region exported 416,000 b/d in October, down 4.8% from 437,000 b/d in September, SOMO figures showed.

Kurdistan is currently exporting 420,000-425,000 b/d and is ready to deliver 250,000 b/d to SOMO as part of an agreement with the federal government, Amanj Raheem, a KRG cabinet minister and member of the Oil & Gas Council, said.

The rest of the oil would be used for payments to IOCs and other expenditure such as pipeline fees, he said.

Output boost

Kurdistan could in the future boost its output, depending on IOCs investments in fields, oil prices and the OPEC+ commitments, he added.

"When COVID-19 will be easier and oil prices rise, I think the IOCs will then invest more money in producing more oil, and in the end to export more oil and get better revenues," Raheem said. "But we now have better coordination with the Ministry of Oil in Baghdad and we are trying to have more cooperation in this regard, especially because there is OPEC commitment on reduced production. It is part of our negotiations with Baghdad."

The KRG's net income from oil was $100 million a month during the second quarter, compared with $350 million/ month during 2019 and Q1 2020, he added.

The KRG and the previous Iraqi government reached an agreement in 2019 about Kurdish transfer of 250,000 b/d to SOMO in return for a share of federal revenues but the pact was never implemented because the government in Baghdad resigned.