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Middle east

Russia's Lukoil wins bid for one of the world's largest untapped oil fields

Text by News Wires

Latest update : 2009-12-14

Russian energy giant Lukoil and its partner StatoilHydro have won the rights to develop the West Qurna-2 reservoir, one of the world's biggest untapped oil fields. Iraq hopes to boost its oil output with the help of foreign companies.

AFP - Iraq struck a deal with Russian energy giant Lukoil on Saturday to develop one of the world's biggest untapped oil fields as part of efforts by Baghdad to dramatically ramp up its crude output.

The agreement over the West Qurna-2 reservoir with Lukoil, which will share the project with Norway's StatoilHydro, comes a day after consortiums led by Shell and CNPC were awarded contracts.

The seven deals reached in the two-day auction promise to increase Iraq's oil production by more than 4.7 million barrels per day (bpd) in the coming years as the country seeks to become one of the world's biggest energy producers and bring in much-needed revenue to rebuild its war-battered economy.

"We can announce that Lukoil has won the contract to develop the West Qurna-2 oilfield," Oil Minister Hussein al-Shahristani said at the conference hall where the auction was held.

Lukoil and StatoilHydro requested 1.15 dollars for each barrel extracted from the giant field and projected output of 1.8 million bpd. Lukoil will take 85 percent and StatoilHydro 15 percent.

West Qurna-2, with known reserves of 12.9 billion barrels, lies west of the equally enormous Majnoon field, which was auctioned on Friday to Anglo-Dutch firm Shell and Malaysia's Petronas.

Shell and Petronas will receive 1.39 dollars per barrel of oil they extract from Majnoon, which has proven reserves of 12.6 billion barrels, and project that they will produce 1.8 million bpd.

China's CNPC led a group comprising Petronas and France's Total on Friday to capture Halfaya, also in southern Iraq.

The trio requested 1.40 dollars per barrel and projected production of 535,000 bpd. The field has known reserves of 4.1 billion barrels.

Also on Saturday, deals were reached over the Garraf, Najmah, Qaiyarah and Badra fields.

Angolan firm Sonangol won contracts to work both Qaiyarah and Najmah, which lie close to each other in the northern province of Nineveh.

Its 12.50 dollar a barrel offer for Qaiyarah had been rejected on Friday as too high. The company lower the figure to five dollars on Saturday morning and clinched a deal.

Sonangol will produce a combined 230,000 bpd from the two fields.

A joint bid from Petronas and Japan's Japex scooped the Garraf field in south Iraq, and will lead to additional output of 230,000 bpd at a price of 1.49 dollars a barrel.

And a consortium led by Russian giant Gazprom was awarded a contract to work on Badra, near the Iranian border, and produce 170,000 bpd. The group, which includes Petronas, South Korea's KoGas and Turkey's TPAO, will receive 5.50 dollars a barrel.

No bids were received to work the East Baghdad field, or two clusters of fields referred to as Eastern Fields and Middle Furat.

Analysts said companies shied away from East Baghdad and Eastern Fields because they lie in areas of Baghdad and Diyala provinces where violence remains common.

Firms were concerned, meanwhile, that developing Middle Furat, a relatively small cluster, would prove expensive as it lacks infrastructure.

Iraq relies massively on oil sales for its economic growth and government income. It will be hoping the auction, the second since June, generates positive headlines ahead of a parliamentary election scheduled for March 7.

The country wants to boost oil production to seven million bpd within six years from 2.5 million now. In the longer term, it is targeting 10 to 12 million bpd, making it a potential rival of Saudi Arabia.

Successful companies will be paid a fixed fee per barrel, not a share of the profits, and only after an agreed production threshold has been reached.

The auction comes just days after coordinated bombings struck Baghdad on Tuesday, mostly targeting government ministries, the third such attack since August.

Bombers have also repeatedly hit Iraq's oil infrastructure, most recently sabotaging the main export pipeline from northern Iraq to the Turkish Mediterranean port of Ceyhan in November.

In the first bid round in June, only one deal was reached because of the perceived low return on investment being offered by the Iraqi government, although two other foreign consortiums have since signed deals with Baghdad.

At 115 billion barrels, Iraq has the world's third-largest proven oil reserves, behind only Saudi Arabia and Iran. Oil sales provide 85 percent of government revenues.

Date created : 2009-12-12

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