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Lukoil To Produce 150,000 b/d In 2013 From Iraq West Qurna-2

04/25/2012 | 07:23am US/Eastern

(Adds details, quotes, background throughout.)

By Hassan Hafidh

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OAO Lukoil Holdings (LKOH.RS), Russia's largest non-state oil producer, aims to produce 150,000 barrels of oil a day at Iraq's West Qurna Phase 2 oilfield in 2013, an output level that triggers cost recovery and service fee payments, a Lukoil executive said Wednesday.

The 13-billion-barrel West Qurna-2 is one of the major fields alongside Rumaila, West Quran-1, Zubair and Majnoon that the member of the Organization of Petroleum Exporting Countries is developing with foreign companies in the south as it recovers from years of war and sanctions.

Lukoil will invest some $30 billion to upgrade the field, said Sergey Nikiforov, senior vice president for Development and Production at Lukoil Overseas Holding Ltd.

Lukoil will produce some 150,000 barrels a day from West Qurna-2 at the end of 2013, Nikiforov added.

"We are planning to increase output from the field to 500,000 b/d in the second quarter of 2014, he said on the sidelines of the start of drilling operations at the field in Southern Iraq.

Iraqi oil minister Abdul Kareem Luaiby, Iraq's state-run South Oil Co. and Lukoil officials Wednesday also marked the beginning of work at the field's central processing facility with a production capacity of 500,000 barrels a day. The project will be built by South Korea's Samsung Engineering Co. (028050.SE).

The West Qurna-2 oil field development project is one of 10 that Iraq awarded in two licensing rounds in 2009 and 2010. If all the companies deliver to the letter of their contracts, nearly 9 million barrels a day of capacity will be added to Iraq's existing 2.9 million barrels a day by 2017, though half that amount looks more achievable given infrastructure hurdles and logistical bottlenecks.

Operator Lukoil and Norway's Statoil ASA (STO) were awarded a 20-year service contract in Iraq's second licensing round held in December 2009. The pair promised to get the southern field pumping at a rate of 1.8 million barrels a day for payment of $1.15 a barrel.

For the undeveloped second-round oil fields, companies will start to recover investment costs and be paid for their services after initial commercial production is hit. In the case of West Qurna-2, that rate is 120,000 barrels a day.

Lukoil and its partners have awarded a series of contracts to international oil services companies, the most important of which was the $1 billion deal to Samsung Engineering Co. earlier this year.

Samsung would build many projects in the field including a central processing facility, or CPF, to produce 500,000 barrels a day from West Qurna-2. Work on the facility is expected to take 29 months to complete from start of work.

-By Hassan Hafidh, Dow Jones Newswires; +962 799 831 831; Hassan.Hafidh@DowJones.com

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