Gulf Keystone Petroleum Ltd. will become the latest oil producer in Iraqi Kurdistan to cut output, as a legal dispute between the region’s government and Baghdad drags on that has pushed up crude prices.
The London-listed company said it expects to shut down Shaikan field streams processed at Production Facility 1 on Friday. Those going to Production Facility 2 will continue to be sent to storage tanks for about two more weeks before being closed.
Gulf Keystone “continues to believe that the suspension of exports will be temporary,” it said.
The Iraqi federal government and Kurdistan officials will meet again in Baghdad next week. That may lead to the resumption of more than 400,000 barrels per day of Iraqi oil exports passing through Turkey, a KRG official told Bloomberg.
Other companies such as DNO ASA and HKN Energy have already started to reduce production in Kurdistan. Genel Energy Plc expects to shut down the Sarta field this weekend, according to a company statement.
Turkey on Saturday shut down a gas pipeline that runs from the northern region of Iraq to the Mediterranean port of Ceyhan. That was after an international trade court said the Kurdistan Regional Government should not export oil from the terminal without Baghdad’s approval.
The Paris-based International Chamber of Commerce ruled largely against Turkey in a case brought by Iraq’s federal government. The move was part of Baghdad’s long-running attempt to rein in the KRG, which eventually wants independence, and take more control over its oil.
Brent crude is up 5.7% this week above $79 a barrel, partly on traders’ fears of a long stop. The US has urged the KRG and Baghdad to allow exports to resume quickly.
Baghdad says it is up to the KRG to break the deadlock by agreeing to let Iraq’s state oil marketing company, known as SOMO, handle Kurdish shipments from Ceyhan.
Smoother relationships
The discussions are complicated by the fact that the KRG owes oil traders, including the Trafigura group, hundreds of millions of dollars from deals signed over the past decade.
Still, relations between the Erbil-based KRG and Baghdad have improved since Mohammed Shia Al-Sudani became Iraq’s prime minister in October. The ICC case was brought by a previous administration.
“We’ve seen conversations going on even before the arbitrator made his decision,” said Richard Bronze, head of geopolitics at Energy Aspects, a consultancy for energy traders. “There’s a reasonable chance that they’ll come up with some sort of deal that will allow the pipeline to be restarted sooner rather than later.”
Gulf Keystone shares are down 18% this week, while Norway’s DNO is down 6.3%.
The combined storage capacity of PF-1 and PF-2 at Shaikan is approximately 150,000 barrels, Gulf Keystone said. Shaikan produces about 45,000 barrels of crude oil per day.
Photo Credit – iStock.com/Jian Fan
