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The near 50% slump in oil prices since June is making it difficult for Baghdad to cover the cost of repaying foreign oil operators their remuneration entitlements. Iraqi Oil Minister ‘Adil ‘Abd al-Mahdi held a series of meetings with senior executives of the major foreign oil operators in Iraq — Shell, BP, ExxonMobil, Total and Lukoil — and further talks in Baghdad for what is believed to be a prelude to an amendment of their contractual terms, informed sources tell MEES.
The Iraqi oil minister has already hinted that he will try to find a way to adapt the original long-term technical service contracts, which he told parliament do not make provision for fluctuations in oil prices in setting remuneration fees. However, given that nearly all the foreign oil majors are having to cut capital expenditures and tighten their belts in 2015 in anticipation of a prolonged period of lower oil prices, any move to defer payments is likely to backfire on Iraq’s plans to expand production capacity, particularly given the public criticism of senior executives with operations in Iraq over bureaucratic delays and infrastructure constraints that are holding back output. Russian oil companies, which are having to rely more heavily on the state to stay afloat, will be particularly adversely affected.
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