Norwegian oil firm DNO International plans to increase production at its prize Tawke oilfield in Iraq's Kurdistan region, it said on Thursday, despite security challenges in the region and low crude prices.
The firm plans to double its investment to $100 million this year, most of it in the billion-barrel field, to raise the field's output to 135,000 barrels of oil per day by mid-2016 from 120,000 bopd now.
The move comes after Iraq's cash-strapped Kurdistan Regional Government (KRG) began paying international oil companies according to the terms of their contracts.
"What's giving us the confidence to pursue our investments is the fact that the payments coming to us now are regularized, they're predictable and they're tied to our contracts, and with that we're comfortable making investments," DNO Chairman Bijan Mossavar-Rahmani told Reuters after presenting fourth-quarter results.
The KRG, which owes oil companies billion of dollars, has been making ad-hoc payments since last September to exporters that had previously gone unpaid for months.
Operators have been reluctant to invest and further develop assets in the region without the promise of regular payment, and the KRG needs production to increase as it struggles to avert an economic collapse.
Iraqi Kurdistan has welcomed more than a million people displaced by the war in Syria while Kurdish peshmerga fighters have been fighting back Islamic State fighters into the very north of Iraq.
More recently protests have broken out after the government unveiled new austerity measures to avert an economic collapse that officials warn could undermine the war effort against IS.
But DNO says it can do business despite the region's challenging security situation.
"In terms of our operations in Kurdistan we saw the worst of that threat in the summer of 2015 when IS came into Kurdistan," said Mossavar-Rahmani. "Since then the security situation so far as our operations are concerned have eased considerably, but we continue to be very vigilant.
"The situation is difficult in the region but we feel safe operating in Kurdistan. We have had no disruptions at all to our activities throughout this period," Mossavar-Rahmani said.
Another international oil producer in the region, Genel Energy, said earlier this week it will resume drilling work at its Taq Taq oilfield in the coming weeks to ramp up production..
DNO presented fourth-quarter results on Thursday that lagged forecasts due to weaker-than-expected cash flow. (Writing by Gwladys Fouche; editing by Susan Thomas)