Iraq starts production at West Qurna 2 oilfield

Lukoil, the publicly listed Russian producer with a headquarters in Dubai, started pumping 120,000 barrels per day on Friday — the minimum it needs to start getting paid by the government for its work at West Qurna 2.

Likoil expects the West Qurna 2 production to hit 400,000 bpd by year end, providing more than a third of the additional volumes Iraq needs to boost production to 4.7 million bpd by 2015. Courtesy LukShow more

WEST QURNA // Iraq launched commercial production at its second biggest oilfield yesterday, bringing the Opec member closer to ambitious targets to ramp up output by an extra million barrels in the coming year.

Lukoil, the publicly listed Russian producer with a headquarters in Dubai, started pumping 120,000 barrels per day (bpd) on Friday — the minimum it needs to start getting paid by the government for its work at West Qurna 2. By year- end it expects to hit 400,000 bpd, providing more than a third of the additional volumes Iraq needs to boost production to 4.7 million bpd by 2015, from 3.6 million barrels in February.

The launch represents a coup for Lukoil, which moved its international headquarters to Dubai last year as it shifted its focus after being shut out of big developments in Russia traditionally reserved for state companies. Before this year, its foreign operations contributed 6 per cent of its 1.8 million bpd global output. The company has doubled that share with the new volumes from West Qurna 2, where it has invested US$5 billion and plans to eventually spend $42bn to bring 1.2 million bpd online over the next five years.

The field will bring Iraq $1 trillion in revenue over its lifetime, said Andrey Kuzyaev, the president of Lukoil’s overseas operations.

It is also in talks to use associated gas for a petrochemical plant and is expected to submit a proposal in two months, Hussein Al Shahristani, the Iraqi deputy prime minister for energy.

“Oil projects will not stop here with building up one oilfield or another, but also with new refineries and building petrochemicals,” Mr Al Shahristani said at a ceremony at the field 65 kilometres northwest of Basra.

West Qurna was discovered in 1973 and explored by Soviet contractors in the 1970s and 1980s. In 1994 Lukoil signed a memorandum of understanding to operate West Qurna 2, but war and sanctions brought the country’s oil industry to a standstill.

After the last Iraq war, Baghdad reopened stalled fields to service contracts, which pay a per-barrel fee instead of allowing companies to book reserves. West Qurna was split in half, with the larger share going to ExxonMobil and Royal Dutch Shell and the smaller West Qurna 2, home to an estimated 13 billion barrels of recoverable reserves, going to Lukoil and Norway’s Statoil.

In 2012, Statoil exited the development and left Lukoil with a 75 per cent stake alongside the Iraqi government. The following year Lukoil, along with other majors, renegotiated its contract to allow it to produce less oil over a longer period — part of an overall downsizing of the country’s long-term output target to 9 million bpd from a heady 12 million.

West Qurna 2 represents a departure from the expertise of Russian engineers more used to Siberia than the drained marshlands of southern Iraq. Temperatures vary between -4°C and 52°C at the field, which had to be cleared of mines from the Iran-Iraq war. A mix of western ex-military and local security forces contend with the risk of protests, such as those last March and April that contributed to a delay in starting up production from 2013 to this year.

“Iraq is not a simple-job country,” Vitaliy Dyachkov, the deputy project manager, said through a translator at the company’s newly completed crude processing plant. “At the beginning we had some incidents associated with security issues.”

Production is also expected to become tougher. Pumps and water injection will be needed in coming years, and the yet-to-be developed Yamama geological formation, unlike the Mushrif layer that is contributing to today’s output, holds gas higher in deadly hydrogen sulphide.

The development of fields such as West Qurna and Rumaila is helping to transform Iraq’s marshlands, which were penalised under the regime of Saddam Hussein, Mr Al Shahristani told an audience that included local tribesmen.

“We want to assure the people...that they will be compensated even more than the price of the land,” he said. “Yes, you’ve been very patient and suffered a lot, but now is the time to enjoy the fruit of the oilfields.”

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