Lukoil Pushes Ahead With Global Expansion12 Oct 2023 14:31
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Lukoil's overseas diversification strategy could switch to the development of existing reserves from geological exploration assets that have been the company's focus in the past.
The Russian independent is looking for creative ways of lowering risks posed by US sanctions.
An opportunity to increase production and expand operating margins in Iraq could present a major breakthrough for the company
Middle East in Focus:
Lukoil's best options for significant production increases are in the Middle East, where it is active in Iraq and Abu Dhabi. In Iraq, Lukoil is finalizing changes to the technical services contract (TSC) that could allow it to nearly double production from the West Qurna-2 field by tapping the long-sought Yamama formation, while at the same time boosting its financial returns there. West Qurna-2 is now producing some 480,000 barrels per day mainly from the Mishrif formation. Development of the Yamama horizon is projected to increase output up to 800,000 b/d. Lukoil has been reluctant to invest in Yamama under the original terms of the TSC it signed for West Qurna-2 in 2010. Under that contract it earns a reimbursement fee of just $1.15 per barrel, which drops to 85¢/bbl after tax.
The Russian major has been negotiating better terms for Yamama for at least two years, having even considered selling its 75% interest in West Qurna-2 in frustration. According to Basim Mohammed Jaleel, assistant to the general director of Basra Oil Co. — the Iraqi state company responsible for oil in the south of the country — Baghdad earlier this year gave "the green light" for the amendments to improve the internal rate of return from 6% to just under 10%. Under the agreement, the reimbursement fee would be increased to $3.6/bbl, according to Jaleel. The changes are expected to be finalized by the end of the year.
The new amendments would set a new time line and could include some social obligations as well, sources claim. If approved, it would be the first time Baghdad has changed the terms of a TSC. Lukoil is one of the few international oil companies in Iraq willing to make major new investments if it is able to secure the right terms. It recently won approval from Baghdad for the declaration of commerciality of reserves and the development plan for the 12.9 billion bbl Eridu field in Block 10, which could produce some 250,000 b/d. Lukoil is now preparing to tender contracts for the development before taking a FID, according to insiders....
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