IOCs urge oil and gas bill in Iraq include production sharing contracts

The Association of the Petroleum Industry of Kurdistan, which represents companies including DNO, Genel Energy, Gulf Keystone Petroleum, HKN Energy and ShaMaran Petroleum, have called on Baghdad and Erbil governments to honor their contractual rights amid talks to draft a new oil and gas bill.

The APIKUR also urged that their rights be incorporated into Iraq's budget and any future laws governing oil and gas in federal Iraq and Kurdistan, according to a statement issued by the association.

"It is essential to the future of the industry in these regions, and the many jobs it supports, that the outcome of the negotiations include the cost recovery and profit to which the (international oil companies) are entitled under existing production sharing contracts," it said.

The KRG and Iraqi government held a meeting on Aug. 5 to discuss drafting a new oil and gas bill. Since 2005, the Iraqi parliament has not been able to pass the bill and the Kurdistan region passed its own law and started its own independent exports through Turkey.

During the meeting they agreed to set up a committee to draft an oil and gas bill to help resolve a dispute over the Kurdistan' region's constitutional rights on oil and revenue.

A dispute between Baghdad and Erbil over oil exports escalated in March, when an arbitration court in Paris ruled against Kurdistan's independent oil exports under its own 2007 law, prompting Turkey to halt oil exports through the Iraq-Turkey Pipeline (ITP).

So far, talks between Baghdad, Erbil and Ankara have failed to find a solution to resume the oil exports. Moreover, according to Iraq's budget law, the Kurdistan region has to hand over 400,000 barrels of oil per day.

Contractual rights

"The IOCs want to ensure their contractual rights, including cost recovery and entitlement oil, are accounted for and protected in discussions between Erbil and Baghdad," a representative of APIKUR, told S&P Global Commodity Insights on Aug. 13.

"IOCs in Kurdistan should be reimbursed for real costs just as they are in federal Iraq. Our investments have completely funded the entire sector and there are solutions that will ensure future foreign investment in Iraq's energy sector."

The APIKUR statement also mentioned that the "PSC model used in the Kurdistan region has a competitive investment structure that is widely used in petroleum provinces around the world.

"Under the Kurdistan region PSCs, the IOCs take all the financial risk and, in the case of success, the Kurdistan region keeps the majority share of the reward. The success of the PSC model for Kurdistan is clear."

"To provide IOCs with the confidence that their contractual right to recover costs and receive profit payments from successful projects, the Kurdistan PSC model is governed by English law with dispute resolution via international arbitration at the London Court of International Arbitration," the APIKUR statement said.

The oil companies also said that it will not be possible for the Kurdistan region to provide 400,000 barrels of oil per day to Baghdad, without the IOC companies operating in the Kurdistan region. "To achieve this, the Kurdistan region will be reliant upon production from the IOC operated fields," they said in the statement.

"Despite the political, security, and geological challenges of the region, the IOC managed sector has developed from almost nothing 15 years ago to currently produce around 250,000 barrels of oil per day," the APIKUR said.

"As Kurdistan's most important industry by far, the oil and gas sector now provides tens of thousands of high-quality jobs directly through the IOCs themselves as well as indirectly through service companies, contractors and in the communities neighboring our operations, homes and offices."

Moreover, due to the halt in oil exports, foreign companies operating in the Kurdistan region were compelled to implement cost-cutting measures, leading to staff layoffs.