By John Lee.
Lukoil's West Qurna-2 project in Iraq has added $1.25 billion to the company's earnings in the third quarter.
In a statement to the markets the company said:
"The Group launched the "Mishrif Early Oil" stage on the West Qurna-2 field and reached the planned production of 120 thousand barrels per day in March 2014.
"According to the service agreement, costs are compensated after this level of production is achieved and maintained during any 90 days within a 120-day period. In June 2014, we met this term. Therefore, in the nine months of 2014, the Group accrued revenue from the West Qurna-2 project in total amount of $2,629 million, consisting of cost recovery of $2,589 million and remuneration fee of $40 million.
"In the third quarter of 2014, this revenue amounted to $1,450 million, of which $1,426 million represented cost compensation and $24 million - remuneration fee. This revenue was classified as crude oil sales revenue in the nine months of 2014. Initially, in the second quarter of 2014, this revenue was classified as other sales.
"In order to conform with the current period's presentation, amounts for the second quarter of 2014 have been reclassified. Attributable amount of 3,902 thousand tonnes of crude oil, or 26,761 thousand barrels, was included in Group's crude oil production for the nine months of 2014 (2,121 thousand tonnes, or 14,543 thousand barrels, in the third quarter of 2014), that represented approximately 58% of total production from the field (53% in the third quarter).
"Positive impact of cost compensation on Group's EBITDA for the third quarter and the nine months of 2014 amounted to $1,247 million and $2,264 million, respectively.
"The project's target production level is 1.2 million barrels per day and the total term of the contract is 25 years.
"The Group is exposed to political, economic and legal risks due to its operations in Iraq. Management monitors the risks associated with the projects in Iraq and believes that there is no adverse effect on the Group's financial condition that can be reasonably estimated at present."