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Iraq's KRG to pay oil companies according to contracts in 2016

(Recasts, adds context)

By Isabel Coles

ERBIL, Iraq, Feb 1 (Reuters) - Iraq's cash-strapped Kurdistan region said on Monday it would pay international oil companies according to the terms of their contracts in 2016 in a move to restore confidence whilst cutting costs amid plummeting oil prices.

The Kurdistan Regional Government (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.

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Shares (Berlin: DI6.BE - news) in Gulf Keystone Petroleum, which exports oil from the autonomous region, surged 30.6 percent by 13:30 GMT. Norway's DNO (Oslo: DNOFUT.OL - news) , Genel were up 7.57 percent and 2.632 pct respectively.

Some investment banks however estimate that given the global slump in crude prices, foreign oil companies will in fact be paid slightly less under the terms of the production sharing contracts.

The Kurdistan region's Ministry of Natural Resources said payments will adjust for crude quality differentials compared with Brent prices plus the deduction of transportation charges.

In addition, the international oil companies will be paid the equivalent of 5 percent of the respective monthly netback revenue derived from each field to help them recover costs.

"These payments will cover the IOCs' ongoing operating expenses and provide additional incentives and rewards for new capital investments to maintain and increase field production levels," the ministry said in a statement.

"The new arrangement will provide greater clarity as to the fiscal status of each of the fields."

Monthly payments to the IOCs will be processed within 10 working days of the following month, the ministry said.

Since last June, the Kurds have ramped up independent oil sales to more than 600,000 barrels per day (bpd), but with a bloated public payroll and depressed prices, the region is running a deficit of $380-400 million per month.

Based on the assumption that Brent crude averages $40 per barrel in 2016, investment bank Investec (LSE: INVP.L - news) said it expected Genel to receive on average $20 million per month, down from the roughly $25 million sum it was paid for September-December.

In January, Brent averaged $32 per barrel, equating to a net payment of $15 million for Genel if the production sharing contract was applied, Investec said.

(Additional reporting by Karolin Schaps and Stephen Kalin; Editing by Dominic Evans and David Evans)