Lukoil, ConocoPhillips ready to discuss West Qurna 1 on Iraq's previous terms
MOSCOW. Oct 8 (Interfax) - Lukoil and ConocoPhillips are prepared for direct negotiations on the West Qurna-1 field on the previous terms proposed by Iraq, Lukoil chief Vagit Alekperov told reporters following his recent visit to Iraq.
"We for our part have left information at the Iraqi Oil Ministry that the Lukoil-Conoco consortium is prepared to start direct negotiations on West Qurna-1 on the terms that have already been announced by the ministry," Alekperov said.
He said he hoped direct negotiations on the terms announced for the first licensing round in the summer would start in the middle of October.
As for the West Qurna-2 project, "the dialog is on-going, and into its second round. The infrastructure for both Qurna projects suggests that "there should be one operator," he said.
Asked about the change in opinion regarding the West Qurna-1 project's economics, Alekperov said: "We have made a detailed count of our own economics."
Lukoil and ConocoPhillips submitted a joint bid for the development of the West Qurna-1 field as part of the first licensing round in Iraq. The results were announced at the end of June. Six oil fields and two gas fields were offered in the tender, but the sole service contract was awarded to a group of investors comprised of BP and China National Petroleum Corporation (CNPC) for the Rumelia oil field in southern Iraq.
Alekperov has said the terms for the first tender were economically burdensome and did not cater for the risks that investors would have to bear in Iraq. "We don't think there are any political risks but there are economic ones," for example that is no system of project financing. "Nearly all projects are financed by cash transfers," Alekperov has said.
Investors also have to fund safety for personnel, follow-up exploration and contend with technological risks, as equipment has not been replaced for 20 years, he has said. "Unfortunately this was either not taken into consideration at all or not enough, which is why hardly any contracts were signed in the first round," he has said.
Lukoil will team up with ConocoPhillips to bid at a tender for the West Qurna-2 field in Iraq, which takes place in December.
Lukoil signed a contract with the Iraqi Oil and Gas Ministry for the production-sharing development of the West Qurna-2 oil field back in 1997. The economic sanctions imposed against Iraq after the Gulf War prevented Russian companies from fulfilling their contractual obligations, which prompted the Iraqi side to cancel the West Qurna-2 contract with Lukoil in late 2002. Lukoil has worked to resurrect the contract in negotiations with the new Iraqi regime, and earlier reports say it will transfer a 17.5% stake in the project to ConocoPhillips if the talks are a success. Passage of the new Iraqi oil law was expected to activate the talks.
West Qurna-2 contains an estimated 6 billion barrels of crude. Lukoil's production-sharing agreement runs to 2020. Cumulative production by that time could reach 4.8 billion barrels of oil and 56.4 billion cubic meters of natural gas. Total investment in the project is estimated at around $4 billion.
Lukoil has commitments to invest $495 million in Iraqi oilfields for three years after it becomes possible to develop them.
Alekperov has said it would make economic sense to coordinate the development of the two Qurna fields or join forces to develop them, even if different consortiums develop them.