Lukoil rethinking Iran risks but unfazed by Iraq election uncertainty

Platts– Lukoil is now re-assessing risks of operations in Iran after the recent US decision to re-impose sanctions but remains upbeat on Iraq despite the recent elections, CEO Vagit Alekperov said Thursday.

Despite being unsettled by the Iran sanctions which come into force from November 5, Alekperov told reporters on the sidelines of the St. Petersburg International Economic Forum that “technical talks” on cooperation continue.

Lukoil, Denmark-based Maersk and Indonesian state oil and gas company Pertamina have signed a Memorandum of Understanding on the development of the Ab-Teymour block in Iran.

Lukoil has prepared proposals for Ab-Teymour and is also discussing long-term contracts for supplies of Iranian crude to its European refineries as well as for oil products, Alekperov said.The contacts have not been signed, however, and the company is assessing the risks, he added.

Alekperov stressed that his company, which wound down Iranian projects when the previous package of sanctions against the country were introduced, “has never broken legal restrictions.”

The withdrawal of Western companies such as Total could leave Iran dependent on Russian and Chinese companies as the leading foreign contributors, to the development of its key oil and gas fields, Iranian Oil Minister Bijan Zanganeh said Saturday. They were indeed keen to fill the gap, but this was also an opportunity for smaller European companies to become involved, Zanganeh said.

However, Alekperov said he believed the withdrawal of Western companies from Iran would not provide any additional opportunities for Russian companies, without elaborating.

Following its exit from the Iran nuclear deal, the US has said it is willing to negotiate with European allies on a new agreement, but unwilling to waive sanctions set for re-imposition later this year, key US Administration officials told Congress this week.

IRAQ ASSESSMENT

Lukoil remains positive about its operations in Iraq. It does not expect the recent elections — which are likely to mean several factions jostling to form a government in the coming months — to affect its activities there.

“It’s not having an effect. We hope that a government will be formed and we’ll continue our activities. This is not the first election for us, we’ve adapted quite OK to newly appointed officials; we don’t see risks here,” he said.

Lukoil was continuing to discuss the financial terms for the major West Qurna 2 project it is developing in southern Iraq.

“We’ve agreed that will be compensated for past spending of $360 million that was not previously approved by the authorities,” Alekperov said. “So the Iraqi side is interested in our project continuing,” he added.

Half of the sum is to be repaid in the form of oil supplies in May, the rest will be paid by the end of the year, he said.

Lukoil and Iraq’s Basra Oil Company have signed a new development plan for West Qurna 2, envisaging the project’s crude output growing by 20% to 480,000 b/d in 2020.

Lukoil, which became involved in West Qurna 2 in 2010 and launched production at the field in 2014, has long been negotiating new conditions with the Iraqi authorities for the second development phase of its key foreign asset, calling for more favorable terms than for the first phase and proposing ways of improving the project’s economics.

Last year, the parties announced a second downward revision to the project’s target output to 800,000 b/d. It was initially set at 1.8 million b/d and subsequently cut to 1.2 million b/d following the 2014 oil price drop, which forced the Iraqi oil ministry to request a slowdown in oilfield investments to reduce contractor payments. The new production plateau is expected to be reached in 2024.