Iraq has formally asked oil companies investing in the country to reduce their 2016 spending plans by September 30, citing lower oil prices and government revenue, said Bloomberg.
Abdul Mahdy Al-Ameedi, director of licensing at Iraq’s oil ministry, told Bloomberg that the reduced budgets shouldn’t affect 2015 production as the country was already producing more than 3 m b/d.
“We’ve asked them in a letter we sent them to take into consideration the drop in oil prices and the low revenues of the government that may not cover their investments,” al-Ameedi said. “There was a stipulation that this investment reduction must not affect oil output from the fields that was in the 2015 schedule.”
Reuters was able to obtain a copy of the aforementioned letter, dated September 6, containing an admission from the oil ministry that “because of the drop in our oil sales revenues, the Iraqi government has sharply reduced the funds available to the Ministry of Oil.”
The letter revealed further that this “will result in corresponding reductions of spending within the Ministry of Oil but will also reduce the funds available for the reimbursement of petroleum costs to our contractors”.
Baghdad was already in dire straits even before oil prices sank to $46 a barrel since foreign companies in Iraq’s southern oilfields operate under service contracts, where the government is paid a fixed dollar fee for production.
Reuters learned previously that BP had already agreed to reduce its 2015 spending on Rumaila, the country’s largest oilfield, from $3.5 to $2.5b.
Concerning the other companies – Royal Dutch Shell , ExxonMobil, Eni and Lukoil – one oil executive said “Nobody can invest if they are not paying. At the moment the way things are looking, production in the second half of 2016 is going to start falling”.