Lukoil Starts Iraq Oilfield as Output Reaches 35-Year High

Mar 29, 2014 11:05 am ET

(Updates with destination of crude in 5th paragraph)

March 29 (Bloomberg) -- OAO Lukoil started producing crude from Iraq’s second-largest oilfield as the nation boosts output to levels last seen more than three decades ago.

The West Qurna-2 field in southern Iraq has been producing at a rate of 120,000 barrels a day since yesterday, operations manager Gennady Budarin said an interview in Basra. Russia’s biggest publicly traded oil producer expects the field’s daily output to reach 400,000 barrels by the end of the year, he said.

Lukoil plans to lift production at the site to its plateau of 1.2 million barrels by end-2017, after drilling 459 wells and using water injection. This volume is a third of Iraq’s current production of 3.6 million barrels a day.

Iraq is now the second-biggest member of the Organization of Petroleum Exporting Countries behind Saudi Arabia, after adding 1 million barrels of output since 2007. Wars and sanctions crippled the country for decades, contributing to four of the 11 biggest global supply shocks in the past 60 years, according to the International Energy Agency in Paris.

“West Qurna-2 first oil is significant to global markets,” Lukoil Chairman Vagit Alekperov said today at the inauguration ceremony at the field’s site, attended by Iraqi Deputy Prime Minister for Energy Affairs Hussain al-Shahristani. The company plans to sell 70 percent of its share from the field’s production in Asia, said Lukoil Overseas Holding Ltd. President Andrei Kuzyaev.

“Russian companies are eager to help Iraq rebuild its oil industry,” said Russian Deputy Prime Minister Arkady Dvorkovich.

Boost Capacity

The Arab nation plans to increase output capacity to 4.7 million barrels a day next year, from about 3 million in 2013, al-Shahristani said Jan. 28. Capacity will reach 4 million barrels a day by the end of the year, with OAO Gazprom planning to start production from Iraq’s Badra oilfield in May, Oil Minister Abdul Kareem Luaibi told reporters today.

West Qurna-1, operated by Exxon Mobil Corp. and Eni SpA- operated Zubair oilfield will also contribute to increasing Iraq’s output, said Mahmoud Abdel Amir, the deputy director general of state-run South Oil Co., in an interview.

“Iraq has been the key growth center within OPEC,” said Amrita Sen, the chief oil market strategist at Energy Aspects Ltd. in London.

Iraq boosted production to a 35-year high of 3.6 million barrels a day in February, the IEA estimates. Export capacity in the south is rising with offshore facilities to load tankers in the Persian Gulf.

Oil Revenue

The government is still contending with a dispute over oil revenue in the northern Kurdish region, as well as attacks on a pipeline to Turkey. Al-Shahristani confirmed an offer by the Kurds to export 100,000 barrels a day of crude produced in their region through a pipeline to Turkey run by the central government starting April 1.

West Qurna is 64 kilometers (40 miles) northwest of Basra. It is divided in two, with West Qurna-1 being developed by a group led by Exxon Mobil and West Qurna-2 operated by Lukoil. The latter, with reserves of 13 billion barrels, was discovered in 1973 and explored by Soviet geologists in the 1970s and 1980s. Rumaila in the south is Iraq’s biggest oilfield.

Iraq should reap about $1 trillion over the 25-year life of the West Qurna-2 project, while Lukoil should sell $90 billion worth of oil with an investment of about $40 billion, Kuzyaev said.

The project also provides for processing 6 billion cubic meters of gas a year associated with the oil produced in the field, some of which will be used as feedstock in a petrochemical plan that Lukoil plans to propose in two months, al-Shahristani said.