OREANDA-NEWS. August 17, 2017. Iraqi field-level production data appears to show it has deepened crude output cuts, but methodology changes are the more likely explanation. And data from international oil firms show output from the semiautonomous Kurdistan region to be much higher than the federal government's estimate.

Baghdad is facing pressure to improve its compliance with the production deal struck between Opec and several non-Opec countries. Argus estimates Iraqi output has been 4.45mn b/d so far this year, making it just over 50pc compliant, compared with Opec's overall 101pc compliance rate. Iraq agreed to cut output by 210,000 b/d from an October 2016 baseline figure determined by secondary sources, including Argus, to 4.35mn b/d until March next year. Production data from the federal government in Baghdad put output at 4.54mn b/d this year.

Iraq's low compliance led to an appearance before a joint ministerial monitoring committee meeting earlier this month to discuss its future production plans. Saudi Arabia's oil minister Khalid al-Falih made comments after a meeting with his Iraqi counterpart Jabbar al-Luaibi on 8 August that could be interpreted as a public hint that Iraq needs to improve its compliance.

Iraq's production published two days later in Opec's latest Monthly Oil Market Report (MOMR) showed output at 4.4mn b/d in July, down by 150,000 b/d from June. A regional breakdown for July, provided by the oil ministry, shows a decline of 374,000 b/d when compared with the previously-published breakdown for September 2016, before the Opec agreement. The biggest fall comes from state-owned North Oil, (NOC) followed by the Kurdistan region (see table).

An explanation for the large drop from NOC could be a methodology change. The ministry's September figure for NOC included production from Bai Hassan and Avanah Dome, in Kirkuk, even though these fields were taken over by the KRG in 2014 to prevent them falling to Islamist group Isis. Production from the two fields totalled 275,000 b/d in September last year.

Data from the Kurdistan Regional Government (KRG) placed the region's output at just over 560,000 b/d for the same month in 2016, similar to the federal government's estimate but including production from Bai Hassan and Avanah Dome.

This raised a question whether production at Bai Hassan and Avanah Dome was being counted twice by the federal government. It was a possible reason behind the large differences in Iraq's production according to the government and according to estimates from secondary sources used by the Opec secretariat.

While Iraq says NOC output has dropped to 161,000 b/d in July this year, a senior NOC official said this excludes production from Bai Hassan and Avanah Dome. Excluding those fields would place NOC production 10,000 b/d higher than in September last year. In addition, the federal government does not appear to have reallocated the production from the two fields to Kurdistan's total — the ministry says the northern region's production has fallen by 139,000 b/d since September last year.

The Kurdistan region is responsible for much of Iraq's apparent production fall. But Baghdad admits the KRG ministry of natural resources (MNR) refuses to provide it with production data. The MNR has not published its monthly output report since November, citing an audit process.

Information from foreign firms operating in northern Iraq show Kurdistan's production is fairly flat, if not higher than in September last year, at over 560,000 b/d. This excludes production from NOC fields.

Output at the Taq Taq field, operated by independent Genel Energy, has declined by almost 40,000 b/d between September 2016 and July this year. But production began at Abu Dhabi-listed Taqa's Atrush block in July, and this is scheduled to reach 30,000 b/d in 2017. Production has also increased at independent Gulf Keystone's Shaikan field, at Kar's three Kirkuk fields, and at Norwegian DNO's Tawke field.

The KRG exported just over 550,000 b/d of crude in July from Turkish ports, including shipments from Shaikhan through the Turkish port of Dortyol. This includes exports from NOC fields in Kirkuk.

Iraq has occasionally muddied the waters over its compliance levels. Officials have suggested it could increase production, keep exports the same and still remain committed to the Opec/non-Opec deal, although exports are not a factor in compliance. According to Argus tracking, Iraq's exports totalled 3.995mn b/d in October 2016, hit record levels of just above 4mn b/d in November-December, and averaged 3.83mn b/d in January-July.

The IMF forecasts Iraqi exports to fall by just 40,000 b/d in 2017 compared with a year earlier to 3.75mn b/d. It expects a rise to 3.89mn b/d in 2018.

Iraq is facing what the IMF calls "double shock" as a result of the conflict with Isis and persistent lower oil prices. This has contributed to a decline in international reserves to $45bn at the end of 2016 from $54bn at the end of 2015. The IMF expects this to fall to $41.4bn this year and to continue falling into 2022. These factors have also caused a rise in the government deficit to 14pc of GDP last year from 12pc in 2015. The IMF says with the current outlook for oil prices and production, the budget deficit could be eliminated by 2021 should fiscal reforms be implemented.

If IMF projections prove to be correct, Iraq's crude production will have to increase for the remainder of this year. Baghdad has sent mixed signals on this. Officials in the country's economic committee continue to stress a need for exemption from the Opec deal, despite minister al-Luaibi reaffirming Iraq's commitment. Iraq has said it should be exempt from the deal because of the strain caused by over a decade of war.

The IMF forecasts Iraq's crude production will be 4.57mn b/d in 2017, up from a previous estimate of 4.5mn b/d. Iraq's output would have to increase to 4.61mn b/d in August-December for the IMF figure to be reached.