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Financial Times: Lukoil optimistic on Iraq

By Carola Hoyos
Published: January 31 2006
Lukoil, Russia's biggest oil company, is on the verge of reopening negotiations with Iraq on the Arab country's most lucrative oil development contract.
Leonid Fedun, Lukoil's vice-president, said: “This year we will be able to start specific negotiations to develop fields.” He added: “2006 for us is the year that we are very optimistic. Finally we have a legitimate government in Iraq.”
Lukoil has the major stake in the $3.8bn (€3bn, £2bn) West Qurna oilfield, for which it signed a contract in 1997. But Saddam Hussein, Iraq's former president, severed the contract in late 2002, shortly before the US invasion that toppled him.
Mr Fedun said Lukoil, which has set up an office in Baghdad, expects the contract to be honoured. “We have running contact. It proves that, unlike western companies, we are willing to work under any circumstances,” he said.
Iraq is believed to have the world's second largest oil reserves, after Saudi Arabia. But its fields are underdeveloped. International oil companies, such as Europe's Royal Dutch Shell, Total and BP and ExxonMobil and Chevron of the US, are keen to help develop the fields.
These companies are finding it difficult to discover large new fields and face political challenges to investing in many oil-rich countries. But they have all also said that the bombings and hijackings in Iraq make it too dangerous to send large numbers of their employees to the country.
Lukoil is hoping to benefit from their caution.
“It looks like Russians have a different definition of risk,” Mr Fedun said. Vagit Alekperov, Lukoil's president, had been to Baghdad several times in the past two years – a claim not one leader of a western oil company could match, he said.
West Qurna is believed to hold as many as 11.3bn barrels of oil and is expected to produce 600,000 barrels of oil a day, the same as the entire production of Qatar, the smallest member of the Organisation of the Petroleum Exporting Countries.
“It is a huge contract and we don't need anything else, provided it is realised,” Mr Fedun said.
But analysts warned Iraq still had much to sort out before it would be able to sign any legitimate large oil deal. It is still unclear whether the power to sign oil contracts will rest with Baghdad or the provincial governments. There is still no petroleum law governing foreign investment and no model contract, one analyst pointed out.
Once these issues have been sorted out, Iraq will have to decide if it would rather sign such a large development deal with US and European oil companies that have the most advanced technology and knowhow, or with Lukoil, which would be willing to start work more quickly.
(ConocoPhillips, the US oil company, has a minority stake in Lukoil.)

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