Compensation clause may force Iraq to skip Opec oil deal
LONDON/BAGHDAD: Iraq would have to compensate international oil companies for limits placed on their production, according to industry sources and documents seen by Reuters, further reducing the prospect it will join any Organisation of the Petroleum Exporting Countries (Opec) deal to curb the group’s output.
The compensation — stipulated in contracts — would compound the financial hit of losing much-needed revenue from crude sales, if the cash-strapped country were to yield to Opec entreaties to curtail national production.
Opec member Iraq pays developers a fixed US dollar-denominated fee for every barrel of oil produced in the south of the country — home to its biggest reserves — under technical service contracts agreed between the international firms and the state-owned South Oil Company (SOC).
“Immediately after (an) SOC notice of... production curtailment, the parties shall agree ... a mechanism to promptly fully compensate (the) contractor as soon as possible,” according to an excerpt of the contract the ministry signed with BP Plc in 2009 for the company to develop the 20-billion-barrel Rumaila field.
The compensation, according to the excerpt, “may include, among other things, a revised field production schedule or an extension to the term or payment of all or part lost income to contractor”.
The same clause also applied to other fields covered by the technical service contracts in the south, including fields being developed by Anglo-Dutch firm Royal Dutch Shell Plc, United States major Exxon Mobil Corp and Italy’s Eni SpA, according to industry sources.
A senior oil official with SOC said the country would not have to worry about curtailment clauses because it had no plans to limit production.
“On the contrary, we’re encouraging the foreign companies to raise production as much as they can,” said the official.
Iraq put its output at 4.77 million barrels per day (bpd) last month and said it would not go back to below 4.7 million bpd.
There is, however, no certainty over how the discussions will play out at an Opec meeting on November 30. Reuters
has put its output at 4.77 million barrels per day last month and says it will not go back to below 4.7 million bpd. Reuters pic