Iraq strives for output transparency after Opec dispute

Iraq's oil ministry is striving to make the assessment of its monthly production figures more transparent following a disagreement with other Opec countries over the use of secondary sources that Baghdad argues have been underestimating the country's output.

Iraq argued at the Opec meeting in Algiers last month that it should be exempted from a proposed Opec production restraint deal. Failing this, its delegation argued against having its output and, hence, the level from which it might have to freeze or reduce production, based on secondary source numbers. This contributed to extending the meeting in Algiers to a six-hour discussion. Iraqi oil minister Jabbar al-Luaibi argued that Iraq's oil output was seriously underestimated by the secondary sources. Subsequently, the country's oil ministry met with several of the secondary sources used by the Opec secretariat — including Argus — in Baghdad on 23 October to provide a breakdown of regional oil production for Iraq, excluding territory controlled by the semi-autonomous Kurdistan Regional Government (KRG).

Oil ministry officials and heads of provincial oil companies provided clarity on Iraq's production and domestic consumption. But uncertainty still remains over production from the federal governments unaudited fields — which could increase or decrease official figures — as well as output controlled by the KRG.

Director general of state-owned marketer Somo Falah al-Amri said international auditing companies check the monthly production, consumption and export figures for state-owned South Oil (SOC). But analysts suggest that there could be some discrepancy in production numbers from small fields controlled by the oil ministry that are not internationally audited. This could increase or decrease official figures. There are currently seven oil fields not producing as a result of security risks, deputy oil minister Fayadh al-Nema said. These include the Hamreen and Ajeel fields in northern Iraq, which previously produced 6,000 b/d and 28,000 b/d, respectively. And analysts said some small unaudited fields are sporadically producing, but that official data on this is limited.

The Iraqi oil ministry in Baghdad concedes that it does not have access to official production figures for fields controlled by the KRG in the Kurdistan and Kirkuk regions.

Production in Kirkuk is split between state-owned North Oil (NOC) and the KRG's ministry of natural resources.

Al-Amri said the absence of official data from the ministry of natural resources has forced the government to estimate the region's figures.

"They have refused to give us data and information officially from the ministry of natural resources," deputy oil minister Fayadh al-Nema said. The ministry in Baghdad uses exports from northern Iraq to the Turkish point of Ceyhan as its main reference for northern production as well as data from officials within the ministry of natural resources. But their estimation is also based on reports, meetings, newspapers and interviews, al-Nema said.

Some major fields such as Tawke and Taq Taq and Shaikan are operated by foreign oil companies that provide monthly or quarterly production data to their stock exchanges.

Iraq placed KRG production at 595,000 b/d in September. This excluded 31,000 b/d of crude exported from the Baba Dome, and the smaller fields Jambur and Khabbaz controlled by NOC in Kirkuk. Until the beginning of September, crude exported through the Iraq-Turkey pipeline was being unilaterally marketed by the KRG and exported from Ceyhan. But Iraq recently resumed oil flows from state-owned NOC fields in Kirkuk through the pipeline and the KRG has resumed transfer of crude to Somo tanks at Ceyhan.

The federal government's September figure for the KRG region also included 50,000 b/d of exports by truck to Turkey. Oil ministry officials said that they rarely receive intelligence on truck exports, but they have been given information on unknown quantities of crude being taken to a number of countries. The KRG's ministry of natural resources included truck exports in its 2015 annual oil production report but has not provided this figure on a monthly basis. In the past, Shaikan crude was trucked to the Turkish port of Dortyol for export.

The oil ministry in Baghdad is unable to provide an exact production breakdown for fields controlled by the KRG. It is also unclear if its September production figure for the KRG region excludes the Avanah Dome and Bai Hassan, which NOC director general Farid al-Jadir said were producing 275,000 b/d. Iraq's oil ministry includes the total for these two fields in its own production figures, despite the KRG takeover in 2014 to prevent the fields falling to Islamist group Isis. Officials at Kurdistan's ministry of natural resources told Argus that their production figures also include these two fields, leading to the question whether some of the production of these fields is being counted twice.

The KRG annual oil production report for 2015 does not include the Avanah Dome or Bai Hassan fields, but said Khurmala produced 285,000 b/d in 2015. Previous Argus estimates placed Khurmala output at around 100,000 b/d in 2015. In June 2014, the KRG built a new 200,000 b/d pipeline linking the Avanah Dome of Kirkuk and Bai Hassan to the 100,000 b/d Khurmala field, operated by local Kurdish group Kar on behalf of the KRG. KAR declined to comment.

Production and consumption figures in recent months have fluctuated because of security incidents and technical issues, enormously complicating attempts to provide reliable numbers.

The 180,000 b/d Bai Hassan field reduced output following an explosion on 10 August and attacks on 30-31 July that led to a fire at the field's storage sites. The field has now resumed full production, al-Jadir said. The oil ministry has regained control of the oil wells at the Qayara field from Isis, which set fire to the oil wells and fled ahead of the military advance. Iraqi security forces regained control of the region's oil refinery on 25 August. There was a major counter-attack on 21 October in the Kirkuk province by Isis in response to advances by Iraqi and Kurdish security forces towards Mosul. Isis attacked power stations in the Dibis District, but the stations were under construction. The attacks had no impact on oil production. Al-Amri also said that the Basrah refinery processed 187,000 b/d of crude in September, but that two months ago this was over 200,000 b/d.

Despite a lack of transparency from the KRG, the federal government would not consider excluding Kurdistan's production figures for the sake of Opec discussions over market share, oil officials said. And acquiring official information from the regional government requires rapprochement between the two sides. There are signs that tensions between Baghdad and Erbil are thawing, as the KRG has now resumed transferring a portion of oil exports to Somo. Previously, the crude was unilaterally marketed by the KRG and exported from Ceyhan after a failed agreement over the division of oil revenues. The president of the Kurdistan region Masoud Barzani also visited Baghdad last month for the first time since 2013. Al-Amri said the federal government is discussing including payments for KRG crude in its 2017 budget. And Iraq's oil ministry recently launched a new bidding round for 12 oil fields, which included invites for Crescent Petroleum and Gulfsands Petroleum. This suggests that the federal government has scrapped its policy of excluding companies that have signed upstream contracts with the KRG without federal government approval.

Iraq is looking to boost revenues from oil exports and push a figure of 4.7mn b/d as its base crude production ahead of discussions by Opec members to limit output. Consequently, it is in Baghdad's interest to ease tensions with the KRG, as Iraq's production fell at the start of the year because of an ongoing dispute between the two sides. The oil ministry in Baghdad halted around 150,000 b/d of exports from NOC fields through the Iraq-Turkey pipeline in March. And NOC reinjected over 80,000 b/d of crude back into the ground as a result of limited storage and trucking capacity.

Iraq's oil minister Jabbar al-Luaibi had been looking for an exemption from the mooted production limits at the start of Opec discussions in Algeria last month. Iraq deserved the exemption, al-Luaibi said, because over 10 years of war and economic crises have drained the country's revenues.

Opec secretary general Mohammad Barkindo and a delegation from the Opec secretariat met this week with Iraq's oil ministry and other senior officials. Barkindo also met with the leader of the National Alliance, the largest Iraqi parliamentary bloc, the head of Islamic Supreme Council of Iraq Ammar al-Hakim as well as other top government functionaries.

A statement from Opec after the meetings stressed the current military push on Mosul, a factor that might encourage other Opec members to exempt Iraq from the time-limited constraints they hope to adopt at the end of November.

Tomorrow, Opec members hold a technical committee meeting in Vienna to hammer out the parameters of the proposal to agree a production ceiling of 32.5mn-33mn b/d.