Oil Deal Between Baghdad and Erbil Could Spell Big Windfall

LONDON -21.9.2012 – THE NATIONAL Florian Neuhof – A breakthrough deal between Baghdad and Erbil should allow UAE companies with assets in Kurdistan to cash in. Iraq’s finance ministry, which collects revenues earned from Kurdish crude and is responsible for directing payments to Kurdistan, will dispense 1 trillion Iraqi dinars (Dh3.15 billion) to companies producing oil in the autonomous region, according to the terms of an agreement brokered last week.

The payments will be released in two parts, with US$650 million (Dh2.38bn) to be handed out this year and the rest in the next, said Ashti Hawrami, the Kurdish oil minister.

So far, the patchy and insufficient payments handed out by Baghdad only reimbursed companies producing in Kurdistan for operating costs and not for a share of profits as determined in the production sharing agreements (PSAs) struck with the Kurdish government.

This is expected to change next year as the central government appears to have implicitly endorsed the Kurdish contracts. “They will be paid according to the contracts now,” said Mr Hawrami.

A range of UAE-affiliated companies operate in Kurdistan and have been hurt by insufficient payments. Dana Gas, owned by Sharjah’s Crescent Petroleum, is set to refinance a $1bn sukuk because it has not received sufficient revenue from its Kurdish operations.DNO, a Norwegian company merged with RAK Petroleum, and OMV, owned in part by Abu Dhabi’s International Petroleum Investment Company, are also active in Kurdistan.

The Iraqi central government has, in the past, baulked at legitimising contracts struck between the Kurds and international companies, fearing autonomy over energy resources is a precursor to full Kurdish independence.