Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on March 12, 2015
Iraq builds up arrears to majors as oil price drops
Iraq is building up debts to the oil companies developing its giant fields, industry sources said, a further sign of how the oil-price drop is putting a squeeze on revenues in OPEC’s second-largest producer.
Western oil companies including Royal Dutch Shell, BP and Exxon Mobil are working at Iraq’s southern oilfields under service contracts, which are currently based on a fixed dollar fee for additional volumes produced.
As a result of the halving of oil prices to around $56 a barrel from $115 in June, the amount of crude needed to pay the companies has roughly doubled – reducing revenue to a government fighting an Islamic State insurgency.
“The Iraqis have a problem. The number of barrels they have to give to the companies as service fees has risen two-fold because the oil price has fallen two-fold. So Iraq simply has less barrels for themselves,” said a source with an oil major with exploration projects in Iraq.
As a result, sources say, Iraq is not providing the service companies with the repayment volumes they are due and is instead sometimes assigning more cargoes to companies who purchase its crude for cash under term contracts in monthly export schedules.
The current situation contrasts sharply with previous years when Iraqi service contracts were seen as a thin reward for the huge work the companies were doing in Iraq. But their appeal increased with the drop in oil prices.
“They try and strike a balance,” said a source with a company that deals in Iraqi crude. “Some months we see a lot of term holders, in other months it is mostly producers. In April, it’s swung the way of term holders and some of the producers are complaining.”
The source with the oil major said the barrels it had received in February covered only half the dollar amount it was due under its service contract and, unless things changed, it would have to revise timeframes and targets of its exploration program due to the slower payback.
“The situation is very tense with the upstream companies,” said a second source with another company which deals in Iraqi crude. “Their allocation is lower and lower when it should be higher and higher. It’s a quagmire for the budget.”
Government officials in Iraq could not immediately be reached on Wednesday for comment.
But the government expressed concern earlier this month, when Oil Minister Adel Abdel Mehdi said it was reviewing its deals with the companies because the financial cost of the service contracts was too high to bear. [ID:nL5N0W437F]
Under current contract terms, Abdel Mehdi said, Iraq’s payments due to international companies in 2015 would reach $18 billion. He gave no figure for 2014, and the contract terms are not made public.
Exporting more crude would help, but Basra Oil Terminal and other outlets in southern Iraq that receive the crude produced by the companies are currently not able to handle much more than 2.7 million barrels per day (bpd), sources say, leaving little prospect of ramping up exports in the short term.
So Iraq is also offering companies cargoes of Kirkuk crude produced in its northern oilfields and exported via Ceyhan in Turkey, instead of the Basra Light crude they are producing in the south, as payment, two industry sources said.
Kirkuk exports, offline for much of 2014, resumed in December following a deal between Baghdad and the Kurdistan Regional Government. The Kirkuk-for-Basra swap is not universally welcomed by buyers as Kirkuk is a less popular crude grade than Basra – but at least it is oil.
“Instead of getting just Basra, I’ve seen the upstream companies now getting Kirkuk as well,” said the first source with a firm that trades Iraqi crude. “They are being kind of forced, as there’s not enough Basra to go around, to take Kirkuk instead.”
4 Comments on "Iraq builds up arrears to majors as oil price drops"
BobInget on Thu, 12th Mar 2015 11:09 am
(Reuters) – Iraq is discussing a possible bond issue worth nearly $6 billion with Deutsche Bank and Citibank as part of its efforts to cover a huge projected budget deficit this year, Finance Minister Hoshiyar Zebari said.
State revenues have tumbled along with falling oil prices just as Iraq faces a costly military campaign against Islamic State militants in its northern and western provinces, leaving a likely 25 trillion Iraqi dinar ($21.4 billion) shortfall.
To fund the deficit, Zebari said the finance ministry was looking at measures including the bond issue, borrowing from state banks, and converting some Iraqi bank assets held with the central bank into bonds.
It might also consider raising money through forward sales of oil if the cabinet rejects plans for the 10-year bond issue. Officials say Prime Minister Haider al-Abadi’s cabinet sees the proposed 9 percent interest rate as prohibitively high.
The sharp fall in oil prices forced Zebari into several revisions of the 2015 budget, each time trimming projected revenue from crude exports. The final version was based on a $56 price per barrel and exports of 3.3 million barrels per day.
BobInget on Thu, 12th Mar 2015 11:49 am
At least Venezuela doesn’t endure huge cash outlays for war(s).China, Venezuela’s new ‘partners’ will carry Ven till oil prices improve.
Watch this space for China to step up and lend Iraq enough (at lower interest rates)
Thereby grabbing Iraqi oil along with Venezuela’s and Iran’s. (China already has Russia’s)
A few more military victories over IS may prompt US Republicans to rush back to Iraq
fearing Iran is taking over. Duh. It isn’t
Iran dummies, it was China.
Those same Republican Chicken Hawks will wake up one day insisting we take on China
” because Obama permitted China to steal ‘OUR OIL”
Seriously folks, If China wrests Iraqi oil from the US and UK, all our two trillion dollar war efforts in Iraq will have been for naught.
If you believe China was responsible for this
phony ‘oil glut’ because they benefited so greatly, no one would blame you.
I don’t think even the Chinese are that cunning. Example: ar·bi·trage
ˈärbiˌträZH/Submit
noun
1.
the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.
verb
verb: arbitrage; 3rd person present: arbitrages; past tense: arbitraged; past participle: arbitraged; gerund or present participle: arbitraging
1.
buy and sell assets using arbitrage.
A strategy: Buy distressed oil companies that are oil and land rich and cash poor. It’s legal.
Timing is everything. We are close, but not there yet, to another bottom for oil. Wait for so called ‘experts’ to tell you when and your too late.
When Warren Buffett says buy, its often some time after he completed his (blood in the streets) trades.
Chinese oil traders know, China and India alone are capable of consuming every liter of exportable oil in the not too distant future.
It’s not nuclear weapons the US is really fearful of, it’s China and Iran grabbing Iraq’s oil.
If Communist China sucedes in cornering
Iraq’s oil, the US has little alternative then to pay whatever Putin, (the next world front man
oil minister) asks.
Doubt me?
Study up on “Command Economies” .
Speculawyer on Thu, 12th Mar 2015 2:22 pm
Gotta kinda feel sorry for Iraq. The place still has random sectarian terrorism, the price of oil has plunged, they are fighting a civil war with ISIS. I think their suppliers need to be a bit understanding.
GregT on Thu, 12th Mar 2015 3:01 pm
You should feel sorry for the Iraqi people spec. They are human beings just like the rest of us.
“Iraq Death Toll Reaches 500,000 Since Start Of U.S.-Led Invasion, New Study Says”
“Nearly half a million people have died from war-related causes in Iraq since the US-led invasion in 2003, according to an academic study published in the United States on Tuesday.”
“About 70 percent of Iraq deaths from 2003-2011 were violent in nature, with most caused by gunshots, followed by car bombs and other explosions, said the study.
Coalition forces were blamed for 35 percent of violent deaths”
I think their invaders need to be a bit understanding. These people have been murdered in cold blood.