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LUKOIL wins right to tap Iraq's largest oilfield

By Finam

The results of the tender for the right to tap one of Iraq’s largest oilfields, West Qurna 2, were announced on December 12. The tender was won by a consortium of LUKOIL and Statoil. In line with the tender terms, LUKOIL will control 63.75% in the consortium, 11.25% will go to Statoil, and the remaining 25% will go to the Iraqi government. In addition, the consortium will get a USD 1.14 reward for each barrel recovered in excess of the set limit of 1.8 million barrels per day.

Recoverable reserves of the West Qurna 2 oilfield total 1.75 billion tons of crude, or 45% of LUKOIL’s total reserves. However, LUKOIL will not be able to reflect these reserves on its books, as its contract for the oilfield is actually a service contract: according to which, the consortium does not own the crude it recovers from the field, but is only entitled for a reward for oilfield development services it renders.

In our opinion, LUKOIL’s victory in the tender was more the result of the company’s efforts to get back the license for the West Qurna 2, which it lost after the war in Iraq began in 2003. In view of the tender terms, we do not expect the project to bring any high yields for the oil producer.