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. Last Updated: 07/27/2016

Oil Bosses to Tackle Iraq Feud




BAGHDAD, Iraq -- A top level Russian delegation hits Baghdad next week hoping to resolve a thorny dispute between the Iraqi government and Russian oil major LUKoil.


Fuel and Energy Minister Viktor Kalyuzhny will be heading the delegation, accompanied by leading executives from major Russian oil companies, including LUKoil, Transneft, Zarubezhneft and pipeline construction firm Zangas, said Leonid Prokhorov, Russia's representative to the Iraqi trade board.


The Russians will attend the third meeting of the Russia-Iraq commission on trade and economic cooperation, which is scheduled to be held in Baghdad next Wednesday. The host delegation will be headed by Iraqi Oil Minister Amir Rasheed.


At Wednesday's meeting - the commission's first since 1997 - several disputes will be discussed, with LUKoil and its participation in the West Qurna-2 project high on the agenda.


United Nations sanctions imposed during the Gulf War. and regularly extended since have meant that Iraq - despite large oil reserves estimated at 15 billion metric tons - has signed just two oil contracts since 1990, both of which were clinched in 1997.


One of those contracts is with LUKoil, a production-sharing agreement covering the West Qurna-2 oil field, which has reserves estimated at 6 billion tons. The other deal, with the Chinese National Petroleum Corp., or CNPC, covers exploration of the Ahdab acreage.


Oil production at West Qurna-2 is supposed to commence within three years of the 1997 agreement, a provision that would seem to give LUKoil precious little time to get extraction at the site up and running.


The agreement does mention several unspecified obstacles that could allow for postponement of production. The Russian side says that these "obstacles" refer to the UN sanctions, a claim the Iraqis dispute.


Production at West Qurna-2 is expected to peak at 600,000 barrels per day, or 20 million tons per annum, LUKoil's general director for Middle East operations, Rafaid Tatevosov, said Tuesday.


Ahdab currently produces about 300,000 barrels a day. Iraq's total crude output sits at 3.6 million barrels a day, UN officials said.


The Iraqis have repeatedly declared their dissatisfaction with LUKoil's level of activity at West Qurna-2.


Under the terms of the Russian firm's 1997 agreement with the Iraqi government, LUKoil was supposed to drill two appraisal wells and carry out several seismic studies in the area. However, the UN sanctions do not allow LUKoil to spend the $300 million or so that would be needed to carry out such activities, Tatevosov said.


"We have done what we could under the sanctions," he said. Kalyuzhny is expected to discuss LUKoil's difficulties during the course of his visit.


The Russian side is hopeful that the resumption of the commission's operations will lead to a significant boost in trade between the two countries by allowing firms from both nations to resolve existing problems and forge new cooperation agreements.


But while Russia has been a thorn in America's side when it comes to U.S. attempts to revive the inspection program checking that Iraq has no weapons of mass destruction, Russia is not interested in subverting or avoiding economic sanctions against Iraq, Prokhorov said.


"Russia does not violate the sanctions. The work is proceeding within the framework of the United Nations oil-for-food program," Prokhorov said.


The Soviet Union had built up a strong presence in Iraq - especially in its oil sector - before the 1990 Gulf War and the ensuing sanctions isolated the country from much of the world economy.


As conditions allow, LUKoil is expected to drill 526 oil wells at West Qurna-2 over the project's 27-year lifespan. Each well is expected to produce some 3,700 barrels per day of crude.