Iraq's new prime minister wants to amend contracts with IOCs

Iraq lost barrels in April when other OPEC producers pumped at will

Coronavirus taking a toll on Iraq's oil industry

IOCs contracts subject of controversy for years

Petrotahlil — Iraq's new prime minister, who was granted a vote in confidence by the country's parliament early Thursday, wants to restore the oil market share of OPEC's second largest oil producer and renegotiate contracts with IOCs, according to his government program.

Mustafa al-Khadhimi, the former intelligence chief of Iraq, listed the measures in the government program that the parliament voted on Thursday. The government program was published on the parliament's website.

Iraq should open "serious negotiations" to restore its oil exports share that has shrunk lately, according to the program.

Iraq took the biggest hit to production for OPEC members in April, losing 110,000 b/d as low fuel demand and a lack of product storage space forced its refineries to severely lower crude runs, according to the latest S&P Global Platts OPEC survey. Production was 4.54 million b/d in April.

Unlike other fellow producers in OPEC such as Saudi Arabia and the UAE which pumped at record levels in April, Iraq was not able to open the taps despite the expiry of the old OPEC+ cuts agreement in March.

Redraw contracts

For example, Iraq's state oil marketer SOMO struggled in April to sell crude to India, one of its biggest customers.

Iraq is grappling with the outbreak of the coronavirus and lockdowns that have taken a toll on its oil industry and forced Malaysia's Petronas to evacuate staff in March and stop production from the southern oil field of al-Gharraf, which pumped some 90,000 b/d.

Iraq also wants to form a negotiating delegation to discuss amending technical service contracts with international oil companies in light of the current oil market developments, according to the government program.

IOCs operating in southern Iraq produce oil from the country's biggest fields.

IOCs operate fields such as Exxon Mobil's West Qurna 1, BP/CNPC's Rumaila, Lukoil's West Qurna 2 and ENI's Zubair. The IOCs are paid for the oil they produce and under complex terms of their technical service contracts, they get quarterly payments for a fixed fee per barrel that is linked to production.

If Iraq decided to pump lower than agreed levels with IOCs, it may still have to pay them for oil not produced, according to analysts.

Several Iraqi politicians have long called for amending these contracts and their terms.

Political backlash

Now that Iraq has to cuts its output by 1.061 million b/d in May and June, according to the latest OPEC+ cuts, it is expected to start negotiations with IOCs over production curbs because lower output from its own operated fields are not enough, according to analysts.

Neither the oil ministry nor the IOCs have publicly commented on these cuts, which have sparked political backlash among some Iraqi politicians who say they are excessive in light of the current oil price crash.

Iraq's oil revenue in April plummeted to $1.423 billion from $2.962 billion in March. Average oil prices in April were $13.80/b, compared with $28.18/b in March.

In 2019, the federal government's monthly oil export revenues averaged $6.794 billion and the oil price averaged $61.13/b.