Kurdistan Oil Payment Raises Hopes for Western Energy Companies

LONDON—The Kurdistan Regional Government has made its second payment this year to Gulf Keystone Petroleum Ltd., the company said Thursday, raising hopes for western energy businesses operating in Iraq's northern region.

The $12 million payment to Gulf Keystone comes amid greater optimism about the semiautonomous Kurdish government's ability to pay oil companies, which say they are owed over $1 billion for crude exports from the region.

Kurdistan has failed to pay the companies as it wages an expensive fight with Islamic State and is struggling to pay its own government workers. Adding to the woes, oil prices are down by more than half in the past 15 months and Kurdistan is arguing with Baghdad over oil sales.

But the increase of oil exports in recent months and the KRG's independent sales from the Ceyhan oil terminal in Turkey have raised enough revenue for the government to cover its domestic budget as well as pay the oil companies, said Tony Hayward, the chairman of Genel Energy PLC, the largest international oil producer in the region, and former chief of BP PLC.

"I think we have turned a corner there," Mr. Hayward said in an interview.

The lack of regular payments for oil produced in Kurdistan and exported via a pipeline through Turkey has crimped revenues and contributed to a drop in the share prices of the three main Kurdistan-focused oil producers—Genel, Gulf Keystone and DNO ASA—this year as some investors have soured on the region. It has also held back any plans the companies may have had for selling all or part of the companies, analysts have said.

Their stocks rallied on Thursday morning on news of Gulf Keystone's payment. Gulf Keystone's shares rose over 6%, Genel was up over 5% and DNO was up nearly 9%.

The three companies are owed over $1 billion, having so far received a total of $165 million in payments this year and one last December. Gulf Keystone is owed $117 million for its crude exports.

Genel received $24.5 million in September from the KRG, which doesn't cover the full amount owed to the company for oil exports. Genel said its total arrears stood at $378 million as of June 30. DNO said in August it was owed $829 million for exports.

Mr. Hayward said the KRG understands that oil companies won't continue to invest if they don't get paid.

In August, the KRG said it would start regular payments from September and would make additional payments to cover the arrears as exports from the region start to rise in early 2016. It said it would fund the payments from its direct crude-oil sales from Turkey's Mediterranean terminal Ceyhan, where Kurdish and northern Iraqi crude is shipped via pipeline.

The KRG exported an average of around 620,000 barrels a day in September through its pipeline and continued to increase its direct oil sales in Ceyhan, according to the Ministry of Natural Resources. That is up from 470,000 barrels a day in August.

The KRG's Ministry of Natural Resources didn't respond to requests for comment.

Situated in northeastern Iraq, the Switzerland-sized region is estimated to hold 45 billion barrels of oil. Crucially that oil is onshore and relatively straightforward to access, making it cheaper to develop than more technologically challenging and costly offshore fields elsewhere. It costs Genel about $2 a barrel to pump oil from its Kurdish fields.

Kurdistan's oil has helped Iraq reach record levels of production. According the Organization of the Petroleum Exporting Countries, Iraq pumped more than 4 million barrels a day in September.

Write to Selina Williams at [e-mail]

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October 15, 2015 08:45 ET (12:45 GMT)

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