Lukoil Eyes Agreement on West Qurna Oil Development

LONDON Nov 28, 2007 (Dow Jones Newswires)

OAO Lukoil Holding (LKOH.RS), Russia's largest privately controlled oil producer, said it expects to reach an agreement to develop the West Qurna oil fields in southern Iraq soon.

Despite previous statements from the Iraqi government saying that Saddam Hussein-era contracts with Lukoil on West Qurna are canceled, the company is readying itself for exploration of the field, which may hold estimated reserves of between 11 billion and 20 billion barrels.

"We are planning shortly to reach final agreement on the control of (West Qurna)", Lukoil Overseas Vice President Oktay Movsumov wrote in an advertisement published in the Financial Times Wednesday.

In the advert, that sets out to tell investors why the company is undervalued, Movsumov writes: "We cannot tolerate with indifference that analysts and investors remain unimpressed and continue to underestimate the potential of the company."

Officially, the company had put the project on ice until a new and long-delayed oil law is adopted by Iraq's parliament.

Russia's Ministry of Foreign Affairs considers the contract temporarily suspended but the Iraq government has said it is canceled.

Hussain al-Shahristani, the Iraqi oil minister, was reported as saying November that the field will be opened to new bidders, perhaps as early as next year.

However, Lukoil still hopes to produce crude from West Qurna.

Chief Executive Vagit Alekperov said in the company's newspaper in November that he expects to revive the $4 billion West Qurna deal, adding it would need to invest $3.5 billion to make the field operable in three years' time.

Sources in Lukoil said that the company started an extensive study of the data this year, including new reserves estimation, reservoir management plans, and geological models at the site.

Lukoil announced in November that the company held talks with senior officials from the Iraqi Oil Ministry in Damascus and discussed the progress of studies that it was conducting "on a number of Iraqi oil fields", according to a statement.

Although not mentioned specifically, West Qurna is among them, a source familiar with the plans said.

Lukoil is understood to believe it is the sole holder of extensive data on the field, collected in 1980-1990.

Lukoil signed a product sharing agreement with Iraq in 1997.

Because of the international sanctions against Iraq at that time, the company said it wasn't possible to start production. Saddam Hussein severed the contract in 2002 because Lukoil didn't start work on the project.

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