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. Last Updated: 07/27/2016

Iraqi Oil Minister Lays Out the Rules

Iraq's oil minister said Thursday that its national oil company would develop the country's largest producing fields, including West Qurna, indicating that LUKoil would face a battle in carving out a spot for itself in Iraq's oil future.

Hussain al-Shahristani did say, however, that LUKoil had a competitive edge over many other companies wishing to work in Iraq because of its previous experience and knowledge of the country.

"We believe LUKoil enjoys some advantages in winning tenders," Shahristani said after two hours of talks with Industry and Energy Minister Viktor Khristenko.

Shahristani said all foreign companies would have an equal chance at access to Iraqi oil fields, but that the Iraqi National Oil Company would be given preferential treatment and would have exclusive rights to the country's 27 largest producing fields.

The Iraqi firm can then hire contractors as it sees fit, he said.

West Qurna, a field already under production with estimated reserves of 4 billion barrels, would go to INOC, Shahristani said.

Legislation before the Iraqi parliament would give the rights to already producing or untapped adjacent fields to INOC. Foreign companies would have the right to bid in tenders for entirely new fields.

LUKoil CEO Vagit Alekperov, who returned to Moscow from vacation for the meeting, and Shahristani "discussed joint projects, in particular West Qurna-2," the company said in a tersely worded statement quoted by The Associated Press. LUKoil was not available for further comment late Thursday.

Zarubezhneft, Rosneft, TNK-BP and a number of Iraqi companies also participated in the meeting with the Iraqi oil minister, a statement released by the Industry and Energy Ministry said.

Shahristani's comments concerning the West Qurna field, in particular, appeared to put a final damper on Russian hopes that contracts existing under the previous regime of Saddam Hussein might be revisited.

Khristenko said the Russian companies were prepared to see previous agreements "corrected somewhat."

"We don't have to start from scratch," Khristenko was quoted as telling Shahristani in a statement released by the ministry. "We have achieved a lot, both at the state level and at the company level."

The Iraqi parliament, which is currently adjourned for a month, is expected to pass the bill next month, Shahristani said, adding that the first tenders could start immediately after that.

Most importantly, he said the ultimate decision on all oil production in the country would rest with the Iraqi oil council, a body that includes himself and is headed by Prime Minister Nouri al-Maliki.

Iraq has vast oil reserves, but its oil industry has suffered from decades of war and neglect. There are about 500 fields believed to hold oil, and only 80 of them have proven reserves, Shahristani said, adding that these fields have already been proven to hold 115 billion barrels of oil.

"The general expectation in the industry is that the last barrel of oil will be produced in Iraq," he said, adding that the more Iraq explores, the more oil it finds.

Despite the decision on existing fields, Shahristani told reporters, the companies with whom the minister met expressed their willingness to start work in Iraq immediately.

Analysts said the time for determining how access to Iraq's oil wealth would be distributed had now arrived.

"We are now getting to the point where the Iraqi prize is about to be allocated -- that is, Iraq now has the potential to be the second largest oil producer after Saudi Arabia," said Chris Weafer, chief strategist at Alfa Bank.

But there was no agreement on what kind of chance Russian companies had to regain former positions in Iraq.

Colin Lothian, senior analyst for the Middle East at energy consultancy Wood Mackenzie in Edinburgh, said LUKoil had a good chance of re-establishing its position in Iraq because it had access to important geological data that provide an advantage over competitors.

Lothian added that it was in Iraq's interest to provide all foreign companies with access to the fields to encourage competition.

"Iraq is in a unique position and many companies are wishing to work there," he said. "Therefore it doesn't have to offer preferential treatment to anybody."

Yevgenia Dyshlyuk, an oil and gas analyst with UralSib, said a lot would depend on the ability of Russia's political leaders to strike deals on access to Iraqi fields with the United States and Europe.

"They should agree on a political level," she said.

On this front, there was some doubt whether the Iraqi administration would be receptive to Russian bids for fields, given the country's opposition on the U.S.-led invasion of Iraq. While there were questions raised about Washington's willingness to see Russia play a significant role in Iraq's oil future, others suggested that LUKoil's relationship with U.S. major Conoco-Phillips, which owns a 20 percent stake in the company, could be a factor in its favor.

"Nobody can be under any illusion that the final say lies with the United States," Weafer said.

n Yury Shafranik, former fuel and energy minister, who now heads the Oil and Gas Workers' Union, met with Shahristani earlier Thursday, a spokesman for the union said.

The CIA has listed Shafranik as one of the Russian officials who helped Hussein secretly amass $11 billion from 1996 to 2003 and said he pocketed an estimated $130 million.

Staff Writer Tai Adelaja contributed to this report.