Lukoil, Inpex to invest $300 mln in Iraqi block if commercial reserves found
MOSCOW. June 18 (Interfax) - A consortium of Lukoil and Japan's Inpex, which has won a tender to explore Block 10 in southern Iraq, will invest at least $300 million if commercial reserves are found, Lukoil Overseas, which operates the Russian company's international upstream projects, said in its in-house magazine.
The magazine quoted Andrei Kuzyayev, the president of Lukoil Overseas, as saying the block was one of the most appealing from an investment point of view due to the strong likelihood of large oil reserves being found there. It is also close to Lukoil's West Qurna project.
It will take five-to-seven years to explore the block, but the government has the right to impose a holding period if commercial reserves are found due to the limited infrastructure and Iraq's commitments to OPEC. The government will reimburse the consortium's historic exploration cists if it deems it inadvisable to develop the resources.
The selection of the partner can be explained by Lukoil's development strategy. "We have had close relations with Japanese companies in the past. It is very important for us to grow reserves on the Middle East and to direct oil supplies towards the Asia-Pacific market, one of the key markets for Lukoil," Kuzayev said.
At the beginning of June, in the context of the fourth licensing round in Iraq, Lukoil Overseas and Inpex received the rights to prospect 5,500 square kilometers of block 10, which is located 120 km to the west to the city of Basra. The tender's requirements of the winners are $5.99 per barrel of oil equivalent and a signing bonus of $25 million.
The minimum investment by the consortium will run to $100 million. The mandatory minimum of the program for geological prospecting is 2D seismic work over 1,375 running kilometers and the drilling of one exploratory well, the statement says. Lukoil has a 60% stake in the consortium and is the project operator.
Lukoil is involved in the project to develop West Qurna 2, the world's second-largest undeveloped field with recoverable oil reserves of around 14 billion barrels. The field, which covers 340 square kilometers, is located in the south of Iraq, 65 kilometers north-west of the city of Basra. The 20-year contract to explore and develop the field, with the possibility of a five-year extension, was signed on January 31, 2010. Lukoil has a 56.25% stake in the project, Iraqi state-owned company North Oil Company owns 25%, and Statoil ASA has 18.75%.
In 2017, oil production at West Qurna 2 is slated to total 1.7 million barrels, or 94 million tonnes. In the next three years, Lukoil will invest roughly $4.5 billion in the project, and for the entire life of the project - $27 billion.