Baghdad has signed the last of the oil and gas contracts under its second licensing round, by finalising the West Qurna 2 deal with Russia’s Lukoil and its partner, Norway’s Statoil.

The deal was signed on 31 January, after more than a month of negotiations which followed the submission of the bid in late December.

Lukoil and Statoil have committed to raising production capacity at the West Qurna-2 reservoir near Basra to 1.8 million barrels a day (b/d) by 2017 in exchange for a $1.15 a barrel fee. The field is thought to hold about 12.8 billion barrels.

The companies expect to start drilling in 2011, with the production rate hitting 120,000 b/d by the end of 2012.

The field development plan provides for the drilling of more than 500 wells.

Lukoil will have a 56.25 per cent operator stake in the 20-year technical service contract, with a possible extension of five years. Statoil takes a 18.75 per cent stake, while two state-owned companies, South Oil Company and North Oil Company share the remaining 25 per cent. 

The Russian company has said it expects to spend $300m on the field in 2010, with its share of the investment potentially reaching as much as $4.5bn over the next four to five years. Lukoil has a long history with the field, since first signing a production sharing agreement in 1997 with the Saddam Hussein regime.

The work at the field is part of Baghdad’s plan to boost the country’s oil production to 4.7 million b/d by 2016 and as much as 12 million b/d by 2020.

With the final deal in place from the licensing round, the Oil Ministry’s focus will now move to ensuring the investments go ahead as planned.

The government will also need to ensure that the security situation does not deteriorate, particularly in the run-up to the general election planned for 7 March.

“International oil companies will be careful not to start deploying large numbers of their staff to Iraq in the meantime, or start investing heavily, as they fear that political factions who oppose foreign and private investment in the oil and gas industry might do well in the elections”, says Samuel Ciszuk, Middle East energy analyst with IHS Global Insight, a US-based energy consultant.

Along with efforts to improve security and maintain a business-friendly environment, Baghdad also needs to expand its transport and logistics infrastructure to allow it to export more oil. 

According to Ciszuk, the expansion of production at the Rumaila field illustrates the scale of the task.

In November, UK oil major BP and China National Petroleum Company together signed a 20-year development contract for the Rumaila field. The two companies plan to invest $15bn during the 20-year duration of the contract.

The 17-billion-barrel field is the first in Iraq where any work has started since the fall of Saddam Hussein. An extra 100,000 b/d of capacity is scheduled to be in place by early July, according to Iraq’s State Oil Marketing Organisation, lifting total output to 1.1 million b/d.

“There is sufficient spare capacity in Iraq’s pipelines and southern export facilities to handle that increase, but virtually all substantial increases after that will have to be paired with expansions in the pipeline and terminal throughput capacity, putting significant strain on the Oil Ministry,” says Ciszuk.

Source: IHS Global Insight