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Lukoil aiming to step up pace at West Qurna 2

Russian operator in talks with Iraqi authorities over further development of field's Mishrif formation

Russia’s Lukoil is looking at further development of its giant West Qurna 2 oilfield onshore Iraq and has also started a key appraisal campaign at Block 10, also in Iraq, which is expected to hold more than 1 billion barrels of recoverable oil reserves.

Lukoil vice president and Middle East upstream head Gati Saadi Al-Jebouri said the company is in talks with the Iraqi authorities to further develop the Mishrif formation at West Qurna 2.

“This is the second development phase of the Mishrif formation and we are in active discussions with the Iraqi side on how to execute that,” he told Upstream.

West Qurna 2 is producing about 400,000 barrels per day of oil and the second development phase at the Mishrif formation is expected to add an additional 150,000 bpd.

However, Lukoil would be required to drill more wells to achieve a production level of 550,000 bpd, and no time-frame has been declared yet to achieve the higher output level.

The company recently started a drilling campaign at West Qurna involving 25 wells, with the additional drilling of 66 wells also on the cards. The 25 wells being drilled will enable the operator to maintain the current 400,000 bpd output level, Al-Jebouri said.

In addition, the further 66 wells being planned will eventually support the maintenance of current production and a gradual increase, he added.

Lukoil is also aiming to expand the gas power plant at West Qurna 2 and is also involved in talks with Iraq to start building a gas treatment plan, which would help reduce flaring from the field.

Lukoil entered a 25-year service contract with Iraq in 2010 for West Qurna 2 and started production in 2014. It has a 75% share in the oilfield, with the remaining 25% held by Iraq’s North Oil Company, which has a carried interest.

Iraq pays Lukoil a remuneration fee of $1.15 per barrel, in addition to cost recovery, all of which is compensated for by Iraq in the form of oil.

West Qurna 2 has potential to produce much higher volumes of oil, but growth in production has been severely hit in the past as Iraq was unable to meet its cost recovery obligations in time.

Al-Jebouri said the economics of all Iraqi projects being handled by international oil companies have been hurt significantly in recent years. “Firstly, because of the fall in oil prices, Iraq was unable to meet its cost recovery obligations in time, so there were significant delays, during 2014, 2015 and 2016,” he said.

In turn, the delay in execution and production growth for each of the oilfields being managed by international players in Iraq that followed has also damaged economics, he added.

However, by the end of 2016 Iraq managed to settle its cost recovery obligations with Lukoil.

Al-Jebouri claimed that Iraq is now pretty much on time with its cost recovery payments with international oil companies.

Beyond further development of the Mishrif formation, West Qurna 2 has potential to achieve production of 1.2 million bpd, but that would require significant investment and development of the field's Yamama formation.

Additional investment of more than $27 billion would be required to boost production to its peak target level on top of the $5 billion that has already been spent by Lukoil.

Al-Jebouri remains hopeful that Lukoil can proceed with further development at West Qurna 2, but believes that achieving a level of 1.2 million bpd will be “dependent on the Iraqi Ministry of Oil’s capacity and capability to finance these projects”.

6d79b29199e212796d7b1d00a335b704 Major asset: West Qurna 2 oilfield facilities  Photo: LUKOIL