Lukoil, Statoil Sign Initial Pact for West Qurna Phase 2

AMMAN (Dow Jones), Dec. 29, 2009

Russia's Lukoil Holdings and Norway's Statoil ASA Tuesday signed an initial deal to develop the Iraqi supergiant West Qurna Phase 2 oil field, 16 days after the closure of the country's second postwar licensing auction, Iraqi oil ministry officials said.

The two companies won the field by pledging to lift crude oil production to 1.8 million barrels a day for a fee of $1.15 a barrel. According to a separate statement from Statoil Tuesday, the companies have adjusted their shares in the field, with Statoil raising its stake to 25% of the field's development rights from 15% previously, and Lukoil's stake dropping to 75% from 85%.

The initial deal for West Qurna Phase 2 was signed in Baghdad by Iraq's deputy oil minister Abdul Kareem al-Luaby with executives from both companies.

The deal still needs the approval of the Iraqi cabinet before its final signature, the officials said. "We hope that the agreement will be ratified by the cabinet as soon as possible," Luaby said.

"This contract is a major step toward developing our joint activities in Iraq," Dmitry Timoshenko, vice president for business development at Lukoil told reporters in Baghdad, speaking through an Arabic interpreter. "We hope to start work in the field as soon as possible," he added.

Lukoil president Vagit Alekperov told a Russian television service this week that Lukoil aims to invest $4.5 billion in the West Qurna Phase 2 project in the next three to five years. He said he believed that the project would be profitable and would have a rate of return of 15%.

Iraq awarded this year 10 oil fields contracts to international oil companies in two postwar licensing auctions. If these contracts were implemented, they would quadruple Iraq's crude oil production to nearly 11 million barrels a day, which could match or even exceeds that of the world's largest oil exporter, Saudi Arabia.

Supergiant West Qurna Phase 2, discovered in 1973, holds some 12.8 billion barrels of proven crude oil reserves. It is located in the Basra governorate, some 65 kilometers northwest of the city of Basra in southern Iraq.

Lukoil, Russia's second largest oil company in terms of output, signed a contract to develop the field with the regime of Iraqi leader Saddam Hussein but the deal was annulled in 2002--a year before the U.S.-led invasion of Iraq.

Copyright (c) 2009 Dow Jones & Company, Inc.