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LUKoil expects oil prices for Western, Central Europe to rise

LUKoil Russia’s leading independent crude producer, said Tuesday it expected oil prices for consumers in Western and Central Europe, whose supplies have been reduced, to increase.

“Talks are ongoing with consumers in Germany, the Czech Republic, Slovakia and Poland on price increases,” LUKoil CEO Vagit Alekperov told a news conference. The CEO said LUKoil had been forced to redirect some Europe-bound oil supplies and reduce supplies to the four countries, due to reduced profitability. He also told journalists that the board of directors of Gazprom Neft, the oil-producing arm of energy giant Gazprom, would consider setting up a joint venture with LUKoil on September 3. “The documents are being prepared. Gazprom Neft’s board of directors will consider the issue on September 3,” Alekperov said.

LUKoil expects to launch talks with Iraq in September on restarting its contract signed in 1997 on the development of the giant West Qurna-2 oilfield in southern Iraq, he told the news conference. “We hope that the law on oil in Iraq will be adopted in September, after which we’ll be able to launch direct talks on renewing the contract,” Alekperov said.

During talks in Moscow August 9, Iraq’s oil minister, Hussain al-Shahristani, said that licenses for the country's operational and suspended oil fields, including West Qurna-2, would go to the National Oil Company, which will then select foreign companies as contractors. LUKoil was unable to implement the West Qurna-2 contract due to UN sanctions against Iraq introduced after the 1991 Gulf War. Shortly before the fall of Saddam Hussein’s regime in late 2002, Iraq said the West Qurna deal had been terminated over LUKoil’s failure to meet its terms. The Russian company continues to consider the agreement as valid because it was signed until 2020. However, Hussain al-Shahristani said at the talks in Moscow that LUKoil's contract had been suspended but not canceled.

The oil field previously held estimated reserves of 4 billion barrels, with capital investment for its development expected at around $4 billion. Al-Shahristani said Iraq had quadrupled proven oil reserves at the deposit. Under the West Qurna deal, LUKoil held 68.5% and Iraq’s SOMO organization 25%. LUKoil’s majority shareholder (67.3%) is Russia’s ING Bank (Eurasia), and US oil major ConocoPhillips has a 20% stake in the crude producer. The US company’s interest in LUKoil is widely seen as an advantage for the Russian company in US-controlled Iraq. (