LONDON—International oil companies working in Iraqi Kurdistan
will begin receiving monthly payments from September for the
crude-oil they produce and export for the first time since
December, the semiautonomous region's government said on
Monday.
The development marks the first good news in months for U.K. oil
producers like Genel Energy PLC and Gulf Keystone Petroleum Ltd.
and Norway's DNO ASA, whose bets on Kurdistan had soured as they
pumped around 300,000 barrels a day in the first half of the year
without payment for exports. The companies and analysts have said
they are owed more than $1 billion.
Their shares soared on Monday. Gulf Keystone rose 27.6%, while
DNO was up 26% and Genel rose 11.6%.
The news comes as Iraq is exporting record levels of crude oil
in a furious bid to maintain market share during a period of low
oil prices and keep its treasurys full for its war against Islamic
State, which occupies much of the country.
The Kurdistan Regional Government said it would fund the
payments from its controversial direct crude oil sales from
Turkey's Mediterranean oil terminal Ceyhan, where Kurdish and
northern Iraq oil is sent via pipeline. The KRG is supposed to sell
its oil through Iraq's state company but began ramping up its
independent sales of oil through Ceyhan after a disagreement over
pricing.
The KRG exported an average of around 570,000 barrels a day in
June through the pipeline to Ceyhan, it said last month.
Those disagreements, along with an expensive fight with Islamic
State, previously had been cited as obstacles to paying the oil
companies.
The government said the payments will initially cover Genel,
Gulf Keystone and DNO's ongoing expenses, but will increase as
exports from the region rise in early 2016.
"The KRG…recognizes the patience of the producing [companies],
which, despite receiving hardly any payments for their crude oil
production since May 2014, have maintained operations and have
continued to invest to support Kurdistan's crude oil export," the
KRG's Ministry of Natural Resources said in a statement.
Genel declined to comment. DNO and Gulf Keystone weren't
immediately able to comment.
Situated in northeastern Iraq, Kurdistan is a Switzerland-sized
region 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 offshore
fields elsewhere. It costs Genel about $2 a barrel to pump oil from
its Kurdish fields and Gulf Keystone around $5 a barrel.
But to date, the three companies have only received a single
payment of $75 million between them at the end of 2014—the first
since exports scaled up in late 2013. The December payment didn't
fully cover what the companies were owed.
The three companies have been struggling financially and have
pulled back on investment in production increases, limping along on
sales to the Kurdish domestic market, for which they have been
paid.
Gulf Keystone, which was owed $103 million at the end of the
first quarter, has seen its share price crash and its bonds are
trading well below their face value. The company is talking to
prospective buyers about a sale of the entire company or a partial
sale of its assets, which include the giant Shaikan oil field in
Kurdistan.
Genel, which is headed by Tony Hayward, the former chief
executive officer of BP, was owed $378 million at the end of June,
but has been partly shielded thanks to a cash pile it built up
during a bond issue last year that raised $500 million. However,
the company has had to cut capital spending and deferred
drilling.
DNO, which analysts say is owed around $600 million, swung to a
net loss in the first quarter and said further investment to
maintain output in Kurdistan would depend on export payments.
Kjetil Malkenes Hovland contributed to this article
Write to Selina Williams at selina.williams@wsj.com
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