Iraq says no special deals for Russia

Iraq’s national oil company will develop the country’s giant West Qurna field and decide which foreign companies to work with, the country’s oil minister said today, after meeting with the top executive from the Russian oil giant seeking to resume its work at the field.

Husayn al-Shahristani told reporters in Moscow that OAO Lukoil’s previous experience in Iraq gives it a competitive advantage in gaining new contracts there, but the company will get no special treatment from the government.

“As for the oil fields that are allocated to the Iraqi national oil company - and this includes West Qurna – it is up to the Iraqi national oil company to decide how best to develop that field,” he said.

“They will decide what kind of contracts will provide the highest return for Iraq. That’s the criteria that has to be met by the law.”

A new law that will review previous oil contracts and will open the way to a wave of tenders to tap Iraq’s enormous oil wealth is due to be discussed by parliament in September. If approved the tender process could start that month, al-Shahristani said.

Lukoil’s experience “increases chances of this company winning at the free and open tenders that will be held,” he said.

Lukoil had an agreement with Saddam Hussein’s government to drill at West Qurna, and since Saddam’s overthrow and the U.S.-led invasion has been angling to get renewed access to the field.

“The Iraqi oil ministry has documented information that the contract was suspended as it was not implemented,” al-Shahristani said.

Earlier, al-Shahristani met with energy minister Viktor Khristenko as well as meeting for more than two hours with the Lukoil CEO Vagit Alekperov, who returned to Moscow from vacation specially for the meeting.

“They discussed joint projects, in particular West Qurna-2,” Lukoil said in a statement. No further details of the meeting were provided.

Analysts have said that US oil giant ConocoPhillips’ stake of 20% in Lukoil could help the Russian company return to developing West Qurna, which previously had an estimated reserve capacity of 4 billion barrels.

“Lukoil has a good chance to keep West Qurna. Alekperov has said they can develop it 2 to 3 times faster than other companies. They know the geology better,” oil and gas analyst Valery Nesterov of Troika Dialog said. ConocoPhillips’ presence at Lukoil will be a helpful factor, he said.

Despite Lukoil’s strong position, Russia’s relations with the US would be the deciding factor, said Chris Weafer, chief strategist at Alfa Bank.

“No one is under any illusion that the final decision will be taken by the US State Department... but Russia is trying to build a few sympathetic votes around the table,” Weafer said.

Lukoil struck its deal in 1997 at a time when Iraq was under United Nations sanctions. The contract has been hamstrung under its new authorities following the invasion, which Russia adamantly opposed.

All previous oil contracts in Iraq are due to be reviewed in accordance with proposed new legislation that aims to divide the country’s oil wealth among Sunnis, Shiites, Kurds and other Iraqi groups.

The oil bill is one of the so-called benchmarks in the United States’ efforts to encourage national unity in Iraq. The Iraqi parliament will not take up the legislation until it returns from its vacation.

With Iraq’s oil infrastructure frequently targeted by insurgents, the country has struggled to restore oil production to pre-war levels of about 2.5 million to 3 million barrels a day. As of last May, production stood at about 1.9 million barrels a day, according to the US Energy Information Administration.

Al-Shahristani said the country has 80 proven fields and another 400 fields have been identified as possibly containing oil. Production could reach up to 4 million barrels a day by 2010 and even 6 million daily by 2012, he said.

He said that according to the new legislation, 27 fields that are producing oil will be transferred to the national oil company. A further 27 that are not producing, but are located near those fields and have been explored, will also be operated by the company, he said. The remainder will be put up for tender.

Iraq is believed to have recoverable oil reserves of 115 billion barrels, second only to Saudi Arabia, with about two-thirds in the southern part of the country, according to the EIA, the statistical and research agency within the US Energy Department.

Some geologists believe the country may have another 100 billion barrels in its western desert region, which has not been explored.