Iraqi oil ministry warns oil companies of spending cuts
The Wall Street Journal reported that Iraq’s oil ministry has issued a stark warning to the international oil companies running its energy sector that it will slash spending in 2016 as the country feels the full effect of low crude prices and the fight against Islamic State.
A September 6th letter from an oil ministry official is fresh evidence that Iraq is struggling to maintain a swift expansion of its energy sector that has made it the Organization of the Petroleum Exporting Countries’s second-largest producer with 4 million a barrels a day or more this summer.
The letter, addressed to all contractors and reviewed by The Wall Street Journal, warned big oil companies in Iraq such as Eni SpA of Italy, Russia’s Lukoil Holdings, Anglo-Dutch firm Royal Dutch Shell PLC and U.K. giant BP PLC to submit conservative funding requests in 2016. Independent energy companies maintain and expand Iraq’s fields with government money and are reimbursed for production with oil.
The official, Abdul Mahdy al-Ameedi, wrote that “Because of the drop in our oil-sales revenues, the Iraqi government has sharply reduced the funds available to the Ministry of Oil. This will, reduce the funds available for the reimbursement of petroleum costs to our contractors.”
Mr Ameedi also wrote that the oil ministry didn’t expect lower funding to reduce production from the levels that were already stipulated.
Mr Ameedi and the oil ministry didn’t respond to requests for further comment.
Iraq has been reeling from crude prices that have fallen to less than USD 50 a barrel, down from highs of USD 114 a barrel last year, with no near-term recovery expected until 2016. A dispute with the Kurdistan regional government has resulted in much of the country’s oil being exported without any benefit to the central government as it fights a costly war with Islamic State.
In August, Iraq’s oil export revenues were about USD 1 billion lower than in the previous month, at around USD 3.8 billion, down from USD 4.9 billion in July and USD 5.3 billion in June, according to the Iraqi State Organization for the Marketing of Oil.
Analysts have warned that budget problems could affect Iraq’s ability to pay oil companies, potentially resulting in no new development of any of the country’s oil fields in 2016 beyond essential maintenance.
For example, BP is the lead operator of southern Iraq’s large Rumaila field, where production was 1.3 million barrels a day at the end of 2014. There are plans in place for a further multibillion-dollar field development that would add 800,000 barres a day by 2020, but that timing is now under threat.
Asked about the 2016 budget for the Rumaila field, a BP spokesman said the company’s short-term focus is on maintaining current production levels. He said longer term, the company is working with Iraq to fully develop the field to 2.1 million barrels a day.
He said that any query about the size of the company’s budget to do so is really a question for the Iraq government.
Source : The Wall Street Journal