$14.4bn Compensation to IOCs: How Accurate or Possible?

Yet, there is almost a consensus among international oil business independent professionals that KRG’ PSCs are generous to the IOCs, while the federal ministry of oil LTSC gives the highest “government take” ever.

Moreover, under the conditions of “absence of good and sound planning, lacking of prudent resource management and prevalence of real corruption”, as mentioned above, the cost to the Iraqi economy would be much more with PSCs than with LTSCs.

The basic issue, therefore, is the national capacity to manage properly and prudently these contracts; the IOCs are neither angels, nor moralists nor charitable entities- they work for profits in many different ways!

The second issue is “production curtailment”

The Minister referred to article 12.5 of LTSC as the legal base to pay that much compensation to the IOCs.

Actually, this article provides Iraq with the sovereign right “to increase or decrease the rate of production” from the contracted oilfield for six listed reasons; but only three are compensational.

The said article asserts the justification and the timing for compensation. Production curtailments are compensational for only three reasons:

1. To minimize Associated Gas wastage;
2. Government imposed curtailment;
3. Curtailments due to failure of Transporter to receive Net Production at the Transfer Point through no fault of Contractor or Operator.

The same article provides three options to make compensation for the decreased production:

1. a revised (increasing) field production schedule; or
2. extension to the Term (duration of the contract period) or
3. payment of lost income to the contractor (IOCs).

According to credible information and frequently cited reasons almost all cases of production curtailments were due to bad-weather conditions at the loading terminals in the Arabian Gulf: Basra oil terminal; Khor alamia oil terminal and the installed SPMs.

The absence of sufficient onshore storage capacities- oil tank farms- and pipeline capacities to oil terminals had contributed to the frequency of production reductions. With more construction of storage capacities and pipeline capacities and crude configuration could undoubtedly reduce the bad-weather impacts and thus the occurrence of production curtailments.

The ministry of oil does not provide total number for actual days of bad-weather related production curtailments in the south on monthly or yearly bases or which oilfields that have been impacted by such actions. Nevertheless, the duration of these curtailments could be, on annual base, in days not weeks or months.