Iraq's KRG to Pay Oil Firms as per Contracts

Iraq's Kurdistan region said on Monday it would pay international oil companies according to their contractual entitlements in 2016 as it grapples with an acute economic crisis.

The Kurdistan Regional Government (KRG), which owes oil companies billion of dollars, began making ad-hoc payments last September to exporters that had previously gone unpaid for months.

Some investment banks estimate that given the global slump in crude prices, foreign oil companies will in fact be paid slightly less under the new mechanism.

Shares in Norway's DNO, Genel and Gulf Keystone Petroleum (GFKSY), all of which export oil from the autonomous region, nevertheless jumped on the news, which gives more stability to the outlook for producers' oil production payments.

Operators have been reluctant to invest and further develop assets in Kurdistan without the promise of regular payment.

The Kurdistan region's Ministry of Natural Resources said payments will adjust for crude quality differentials compared with Brent prices plus the deduction of transportation charges.

In addition, the international oil companies will be paid the equivalent of 5 percent of the respective monthly netback revenue derived from each field to help them recover costs.

"These payments will cover the IOCs' ongoing operating expenses and provide additional incentives and rewards for new capital investments to maintain and increase field production levels," the ministry said in a statement.

"The new arrangement will provide greater clarity as to the fiscal status of each of the fields."

Monthly payments to the IOCs will be processed within 10 working days of the following month, the ministry said.

Since last June, the autonomous region has ramped up independent oil sales to more than 600,000 barrels per day (bpd).

Based on the assumption that Brent crude averages $40 per barrel in 2016, investment bank Investec (ITCFY) said it expected Genel to receive on average $20 million per month, down from the roughly $25 million sum it was paid for September-December.

In January, Brent averaged $32 per barrel, equating to a net payment of $15 million for Genel if the production sharing contract was applied.

Reporting by Isabel Coles