- The Washington Times - Wednesday, December 30, 2009

BAGHDAD | A consortium led by Russia’s private oil giant Lukoil on Tuesday signed an initial deal with Iraq to develop one of its biggest oil fields in an agreement that is key to the war-ravaged nation’s efforts to boost output, considered crucial to postwar reconstruction efforts.

Lukoil partnered with Norway’s Statoil ASA to bid to develop the 12.88-billion-barrel West Qurna Phase 2 field, the crown jewel of the 15 fields offered during Iraq’s second postwar oil-licensing round held earlier this month.

Under the 20-year deal that is slated to be presented Thursday to Iraq’s Cabinet, the companies plan to produce 1.8 million barrels per day in 13 years and will be paid $1.15 per barrel of crude they produce from the southern field.

Lukoil’s vice president of strategy and business development, Dmitry A. Timoshenko, hailed the signing as an important step forward in its work with the Iraqi government.

“Now we are waiting for the other legal procedures to be completed,” Mr. Timoshenko said. “We hope that these procedures will be concluded soon so that we can start our work as soon as possible.”

For Russia, whose efforts to exploit oil resources include the recent opening of a Pacific port at the terminus of its East Siberia pipeline to serve Asian markets, the deal was a coup. Lukoil had been granted the rights to develop the field in 1997 by Saddam Hussein only to see the dictator rescind the $3.7 billion contract five years later.

For Iraq, it marked a crucial step forward in the country’s so-far faltering bid to raise oil output.

Although it sits atop the world’s third largest proven reserves of conventional crude oil, Iraq produces about 2.5 million barrels per day, of which about 1.9 million barrels a day are exported.

Decades of neglect of the fields have been compounded by the effects of the fighting and sabotage in the wake of the 2003 U.S.-led war to oust Saddam. That violence has meant that Iraq has been unable to even reach its prewar output levels of oil. Crude oil sales account for roughly 90 percent of the government’s budget.

Oil Minister Hussain al-Shahristani ambitiously projected that with these fields, along with others Iraq will develop independently, output could climb to 12 million barrels per day within six years. Analysts say those expectations will fall far short of the reality.

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