By settling a longstanding legal suit, the Kurdistan Regional Government of Iraq (KRG) has made further progress in efforts to restructure and pay down debts ahead of its independence referendum in late September. According to the KRG Ministry of National Resources, the Kurdish government and the Pearl Petroleum consortium have reached a final agreement to settle disputes between the two. The consortium had claimed $26.5 billion in damages due to production and project delays and unpaid invoices, of which it has been awarded about $2.2 billion.
Under the final settlement, the KRG will immediately pay the Pearl Petroleum consortium $600 million and earmark another $400 million for investment. The consortium will increase natural gas production by 160 percent, selling half the product to the KRG and either marketing the remaining natural gas within Iraq or exporting it. The $1.2 billion that the KRG still owes the consortium will be deducted from future KRG revenue generated from the consortium's production blocks. In addition, the consortium's profit share has been increased to be comparable to other production sharing contracts used by the KRG, and it has been awarded two blocks adjacent to its Khor Mor block. Finally, the KRG and the Pearl Petroleum Consortium extended their contract to 2049.
Earlier in August, the KRG reached a similar settlement with DNO and Genel Energy, in which it restructured its debt by giving the oil companies a greater share of production and increasing future payments down the road. However, in its settlement with the Pearl Petroleum consortium, the KRG appears to have paid off much of its debt right off the bat. Dana Gas, which owns the Pearl Petroleum consortium, has struggled to pay off its bondholders and is currently trying restructure its sukuk that mature in October.
Kurdistan's energy sector has had an unstable year. The government resolved some outstanding disputes over money it owes to oil companies and has been developing a strategic relationship with Russia's Rosneft. But there have also been production challenges at oil fields such as one in Taq Taq, where reserves were slashed by roughly two-thirds. Overall, Kurdistan's production is currently around a steady 600,000 barrels per day, when some production from the northern parts of the Kirkuk oil field is factored in.
It's clear that Kurdistan is increasingly interested in resolving financial concerns, a move likely related to the region's Sept. 25 independence referendum. (Indeed, the KRG could soon make a deal with Gulf Keystone Petroleum.) Regardless of the outcome of the referendum, difficult negotiations with the larger Iraqi government will follow. And any steps the KRG can take to get its financial house in order — such as resolving its various debts — will help it gain leverage in those negotiations.