Lukoil Allocates $5 Billion to West Qurna

According to a report from Bloomberg, OAO Lukoil, Russia’s largest non- state oil producer, allocated $5 billion to finance the West Qurna-2 project in Iraq.

The funds were provided as a loan to its Lukoil Mid-East Ltd. unit exclusively for the Iraq project, spokesman Dmitry Dolgov said. The loan matures at the end of 2030, the company said in a regulatory filing.

Lukoil, which reportedly has the most overseas assets of all the Russian oil producers, has looked abroad for profit and expansion because of Russia’s tax burden and the preference given to state companies in gaining licenses to domestic deposits. The company said in March that it planned an initial investment of $3.7 billion in West Qurna-2, after which the project will use free cash flow to fund development.

With partner Statoil ASA, Lukoil won the rights to develop the second phase of Iraq’s “super giant” West Qurna deposit in December after agreeing to pump 1.8 million barrels a day for a fee of $1.15 per barrel. Lukoil holds 56.25 percent, Statoil has 18.75 percent, and Iraq’s North Oil Co. the rest.

The Bloomberg report quotes Deputy Chief Executive Officer, Leonid Fedun, as saying that drilling will begin next year, and that oil output may begin in 2013. The field has recoverable reserves of about 12.9 billion barrels. West Qurna may produce 95 million tons of crude a year, CEO Vagit Alekperov said in February.

Lukoil expects to book 8 million to 10 million metric tons of oil a year from the project, Fedun said June 2. “Over the next few years, Lukoil’s oil output increase will come because that compensation crude we get from West Qurna-2 will provide a stable cash flow and oil flows.”

(Source: Bloomberg, Businessweek)

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