Rosneft to Prepay $1b for Crude From Iraqi Kurdistan

Rosneft PJSC’s commitment to pay in advance for crude oil from the Kurdish region of Iraq is about $1 billion, according to two people with knowledge of the matter who asked not to named as the supply deal is private.

The Russian state-run producer’s trading arm will buy Kurdish oil from now until 2019, Rosneft said in February, without specifying how much crude it would take. At $1 billion, Rosneft would account for about a third of the prepayment deals the Kurdish Regional Government negotiated with oil traders, Bloomberg reported.

Rosneft’s press service did not comment on the payment size when contacted by phone. An adviser to the KRG’s Natural Resources Minister Ashti Hawrami did not immediately respond to a call and email seeking comment.

The KRG is selling oil in advance to help finance government spending, including the military campaign against the Islamic State militants, during a period of relatively low oil prices.

For Rosneft, the deal brings a guaranteed flow of crude into its expanding trading business and is another example of its expansion into the Middle East following deals in Libya and Egypt.

Under the deal with the KRG, Rosneft will receive its first 600,000-barrel cargo this week at Trieste, Italy, from where the crude will be transported by pipeline to its minority-owned refineries in Germany for processing, according to an email from Rosneft. Kurdish crude suits the company’s refining needs in Germany and India, said Rosneft, which could potentially source more oil from the region.

Rosneft owns 24% of MiRO and 25% of BayernOil following the restructuring of a joint venture with BP Plc. The company is also in the process of acquiring a 49 % stake in the Vadinar refinery in India from Essar Oil.

Rosneft Chief Executive Officer Igor Sechin said in February that the company will be “developing new markets worldwide for Kurdish crude oil.” Rosneft has not previously worked with the KRG, which in recent years has struggled to maintain payments to international producers shipping oil from the region.

Rosneft, Russia’s biggest oil producer, has long participated in prepayment deals with trading houses for its own output. The company’s 25-year deal to supply oil to China National Petroleum Corp. has also yielded billions of dollars of advance payments.