Oil Minister Hussein al-Shahristani yesterday came out against the IOCs that have been given export clearance, calling their contracts with the Kurdistan Regional Government (KRG) “illegal and illegitimate”, meaning that a breakthrough might be as elusive as ever.
“The news of a breakthrough in relations between the KRG and the Iraqi central government received a major setback yesterday after Oil Minister Hussein al-Shahristani called the production-sharing agreements (PSAs) between the KRG and IOCs “illegal and illegitimate”, indicates that while the KRG is allowed to export oil, the oil companies would not be reimbursed for their investment,” explained Samuel Ciszuk, IHS Global Insight Middle East energy analyst.
Crucially, without the oil minister’s agreement, the dispute still seems stuck on the issue of who should pay the IOCs for their work. News of a breakthrough in this long-running dispute can only be assessed as crude exports begin, particularly since the KRG is using talk of potential exports to put pressure on the national government to allow exports at a time when any revenue is desperately needed.
“Al-Shahristani’s refusal to recognise the contentious PSAs means that the deadlock is likely to drag on, as a recognition would have de facto recognised the autonomy of the KRG over the region’s oil and gas resources, although pressure is building in parliament and parts of government to agree to a compromise of some kind in order to raise export revenues quickly,’ said Ciszuk
IHS Global Insight cautioned yesterday that there was nothing in the reports of a “breakthrough” to indicate that the national oil ministry and the KRG had yet agreed on how to reimburse DNO and the Addax/Genel Enerji JV, given that the central government of Iraq refuses to recognise the production-sharing agreements (PSAs) the KRG has signed, maintaining that it is beyond the authority of an autonomous region to award upstream contracts.
“This has been at the core of the hold-up thus far, as the Iraqi government has refused to legitimise the KRG’s right to award contracts. Al-Shahristani and Iraqi prime minister Nuri al-Maliki have always welcomed any new oilfields being brought onstream in Iraqi Kurdistan, as well as—at least in theory—any additional exports, but have only offered the region their share of the government revenues directly after marketing (which by law is done by the State Oil Marketing Organization, SOMO),” added Ciszuk.
This means that the KRG would have to manage the full production cost, cost recovery, and profit margin out of its own 17% share of the government revenues. “Given that the PSAs signed with the KRG would normally see IOCs receive an 18-20% production share of the total, an internationally representative level, the Iraqi government is presenting the KRG with an unmanageable equation.”
“All we are saying is that these contracts are illegal and illegitimate. The [Kurdistan] region does not have the right, nor does any province or anyone else, to sign contracts on behalf of Iraq without authorisation”, al-Shahristani told Iraqi state television, adding that “any contracts must be submitted to the ministry”. The remaining deadlock was further underlined by Oil Ministry spokesman Asim Jihad, who was quoted by Reuters as saying that “the Oil Ministry’s position has not changed regarding the contracts signed by the Kurdish regional government with the foreign oil companies. Approving the Kurds to export does not mean approving the contracts they have signed”.
