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    Iraq's West Qurna-2 oil field to go to state company - minister -1

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    Iraq's oil minister said licenses to the country's operational oil fields and West Qurna-2 will be given to the Iraq National Oil Company, which will select foreign companies as contractors.

    (Adds details, background in paras 2-16)

    MOSCOW, August 9 (RIA Novosti) - Iraq's oil minister said licenses to the country's operational oil fields and West Qurna-2 will be given to the Iraq National Oil Company, which will select foreign companies as contractors.

    Russia's largest independent crude producer LUKoil [RTS: LKOH], which operated the first phase of Iraq's West Qurna, is now looking to revive its 1997 deal to develop West Qurna-2 in southern Iraq, signed under Saddam Hussein but frozen in 2002.

    "Assigning oil fields to the National Oil Company means that the company will have the right to choose foreign companies under contract terms," Hussain al-Shahristani told a news conference in Moscow.

    LUKoil was unable to implement the West Qurna-2 contract due to UN sanctions against Iraq introduced after the 1991 Gulf War. Shortly before Saddam's fall in late 2002, Iraq said the West Qurna deal had been terminated over LUKoil's failure to meet its terms. The Russian company continues to consider the agreement as valid because it was signed until 2020.

    But al-Shahristani said Thursday LUKoil's contract had been suspended but not canceled.

    The oil field previously held estimated reserves of 4 billion barrels, with capital investment for its development expected at around $4 billion. Al-Shahristani said Iraq had quadrupled proven oil reserves at the deposit.

    "The more we drill, the more we discover," the minister said. "Today proved reserves are four times higher than a year ago."

    Under the West Qurna deal, LUKoil held 68.5% and Iraq's SOMO organization 25%. LUKoil's majority shareholder (67.3%) is Russia's ING Bank (Eurasia), and U.S. oil major ConocoPhillips has a 20% stake in the crude producer. The U.S. company's interest in LUKoil is widely seen as an advantage for the Russian company in U.S.-controlled Iraq.

    Iraq has proven oil reserves of 112 billion barrels, placing it second only to Saudi Arabia, and according to some estimates, possible reserves could reach 200 billion barrels.

    The minister said: "We have 27 operational oil fields. About the same number of deposits have been prospected but are producing no oil, and these are located near the operational fields."

    Al-Shahristani said the remaining deposits would be put up for tender to encourage competition, and said LUKoil would have competitive advantages due to its vast experience.

    "LUKoil is a large company with considerable experience of working in Iraq and substantial technical advantages, which of course increase its chances of winning the free, transparent tenders for Iraqi oil resources," al-Shahristani said.

    He said the terms on which the National Oil Company would choose foreign partners would be tough. The foreign companies must employ Iraqi nationals and train experts for the Iraqi oil industry, al-Shahristani said.

    Foreign companies must also observe environmental regulations and develop the local infrastructure. The national company will select only those companies that meet the preliminary requirements, and whose current oil production does not exceed the expected oil production in Iraq.

    LUKoil said it produced 95.2 million metric tons (700 million barrels) of crude in 2006, which is 5.8% more than a year before. Iraq currently exports about 1.5 million barrels per day.

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