The UK Government’s Department for International Trade (DIT) is planning to contact Iraq’s Ministry of Oil and Basrah Oil Company (BOC) to gain clarity about the request BOC has made to international oil companies for budget cuts of 30%.
The DIT wants to know practical details about the requested reduction in cost, according to industry sources.
It also says that potential areas for cost-cutting could be future investments or expansions that were planned for fields.
The DIT expects these projects will be put on hold until later in the year or next year and investment may be reduced to merely maintaining and repairing what is already there.
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BOC has asked four international Iraq oil companies to cut budgets and postpone payments to subcontractors due to the oil price crash.
Ihsan Ismaeel, BOC’s director-general, sent a letter to UK-based BP, Italy’s Eni, US-based ExxonMobil and Russia’s Lukoil on 22 March.
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BP is the lead operator of Iraq’s Rumaila oil field, Eni works at the Zubair field, ExxonMobil is the operator of West Qurna 1, and Lukoil works at West Qurna 2.
The fields have a total production capacity of approximately 3 million barrels a day (b/d), more than half of the country’s total output.
The letter requests the companies to reconsider work programmes and reduce budgets by 30%.
It also asked the companies to inform BOC of their ability to postpone or reduce payments by half in the first and second quarters of 2020 and amend contracts with subcontractors to include ‘deferred payment plans’.
BOC did not respond to requests for comment.
Iraq’s economy has been significantly disrupted due to the Covid-19 pandemic.
On 22 March, the Iraqi Government declared the ongoing Covid-19 crisis constituted an event of force majeure for ‘all projects and contracts’.
In a statement, the Iraqi Government’s Crisis Cell said that the period of force majeure would be effective from 20 February.
The total value of all major active projects currently under execution in Iraq stands at $291bn, according to regional projects tracker MEED Projects. These could all be impacted by the government declaration.
Earlier this month, Iraq’s crisis task force ordered schools and universities to be shut and to reduce the working hours of government institutions.
It also imposed a curfew from 17 March, which is expected to stay in place until 11 April.
This article is published by MEED, the world’s leading source of business intelligence about the Middle East. MEED provides exclusive news, data and analysis on the Middle East every day. For access to MEED’s Middle East business intelligence, subscribe here
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