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. Last Updated: 07/27/2016

Iraq to Favor LUKoil, CNPC Bids for Exxon Project

BAGHDAD — Iraqwould favor bids byLUKoil andCNPCif they decided to buy ExxonMobil's stake in the super-giantWest Qurna-1 oilfield, a senior oil ministry official said.

A sale of the stake to either company would significantly strengthen the position ofRussiaorChinain exploitingIraq's oil reserves, the world's fourth biggest.

"During two separate meetings with executives fromCNPCand LUKoil,Iraqinformed the companies that it favors their contribution to purchase Exxon's share in the West Qurna-1 oilfield," the official said Friday.

Baghdad said it had received "positive signals" from both companies that they will consider making an offer for the $50 billion project, which Exxon wants to pull out of to focus on its deal for exploration blocks inIraq's autonomous Kurdish region.

Exxon riled Baghdad by signing deals last year with theKurdistan regional government. Baghdad rejects contracts granted by Kurdistan as illegal and told Exxon it had to choose between working in southern Iraqor Kurdistan in the north.

The U.S. oil major opted to stick with Kurdistan, where the contracts are seen as more lucrative.

"We have received positive signals from bothCNPCand LUKoil that they will consider purchasing Exxon's stake in West Qurna-1," the official said on condition of anonymity.

"Iraqbelieves that both companies have enough financial resources and the technology to manage the giant oilfield instead of ExxonMobil," he added.

Exxon has now opened a virtual data room forWest Qurna-1 and approached all likely buyers, inviting bids by Dec. 5, two sources said.

LUKoil,which is already developingWest Qurna-2, had previously said West Qurna-1 was "too big for it to swallow," but last week said it was looking into the option.

That has prompted some speculation that it could team up with another company, possiblyCNPC, to develop the field.

A spokesman for LUKoil confirmed the company had received an offer to developWest Qurna1: "We are studying it," he said, declining to comment on whether a joint venture was on the cards.

LUKoil is trying to offset a production decline at its fields inRussia, where it faces competition from state-backed companies, by acquiring foreign upstream assets.

The company is active in theMiddle East,Central Asia, West Africa andLatin America. ButRussia's vast Arctic offshore reserves are off-limits for LUKoil due to legal restrictions that limit participation to state-controlled companies.

TwoCNPCsources said the company was aware of Exxon's plan to pull out of theWest Qurna1 project, but declined to confirm or deny reports it was thinking of moving into the field.

In general, they said,CNPCis interested in expanding its operations inIraqand will not entertain any projects in the Kurdish region so as not to jeopardize its existing deals with thefederal government.

A spokesman of the state-ownedChinaNational Petroleum Corp. declined to comment on its plans.

Earlier this week,Iraq's deputy prime minister for energy,Hussein al-Shahristani, said the government was in advanced talks with potential buyers to take onWest Qurnaand that there were enough appropriate candidates.

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