The effects of the dispute curtailing crude output from northern Iraq is hitting the companies that operate there, with upstream independents DNO and Genel Energy today saying they will pare back investments until the situation is resolved.
Norway-based DNO, in its first-quarter results, said it has scaled back spending at the region's biggest field, Tawke, to the point where no drilling will take place in the second half of this year. Genel, which has a stake in Tawke and operates the Sarta and Taq Taq fields, said it now expects capital expenditure (capex) to be below $100mn this year, compared with a previous forecast of $100mn-125mn. Genel also withdrew its production guidance for the year.
Crude exports from the semiautonomous Kurdistan region have been suspended since late March, caught up in a dispute between Turkey and Iraq over exports by the Kurdistan Regional Government (KRG). With the pipeline to the Turkish port of Ceyhan the only viable outlet for the region's crude, storage quickly filled and fields have been shut in. Iraq's state-owned marketing firm Somo said this week that the country's crude production fell by 360,000 b/d because of the northern impasse. Although talks to resume pipeline exports have been held, there is no clear timeline. Iraq's prime minister Mohammed Shia al-Sudani is in Erbil today.
The shutdown appeared to affect regional production in the first quarter, even though it began only a week before the end of the period. DNO, the region's largest operator, said today that its output there fell to around 71,000 b/d in the first quarter, from around 81,000 b/d in the preceding period. Overall production from Tawke fell 94,000 b/d from 106,500 b/d. DNO is shielded somewhat by its North Sea portfolio, but the company's first-quarter profit fell to $71mn from $152.3mn a year earlier.
Genel, which has all its output in the Kurdistan region, said production was 26,000 b/d. It said its guidance for output of between 27,000-29,000 b/d this year is no longer valid, and it will restate this if and when the export pipeline resumes.
DNO and Genel both hold net cash that could provide a buffer during this uncertain period. But they will be wary, given past experience, of how delays to payments can escalate. The KRG pays for oil sales with a lag of months — Genel received August and September 2022 payments in the first quarter 2023 — and has processes in place to settle overdue liabilities with upstream operators. DNO said today it was owed nearly $320mn at the end of March, and said it is seeking "more timely payments" having seen increasing delays last year and this year.
