Lukoil and BP eye Iraq upstream exit

Market: Crude oil
04/07/21

Two of Iraq's biggest upstream oil partners — BP and Russia's Lukoil — are looking to sell their assets in country, oil minister Ihsan Ismael has warned.

Ismael said in a video posted to the oil ministry's Facebook page late yesterday that Lukoil has sent him a notification to sell its stake in the 13 bn bl West Qurna 2 field and that BP wanted to pull out of Rumaila, Iraq's single biggest producing field with a capacity of nearly 1.5mn b/d.

A spokesman for the oil ministry confirmed the comments were made during a session answering questions from a parliamentary committee on 29 June.

BP is one of Iraq's most important partners. It was awarded a 47.63pc stage in the Rumaila oil field in 2009 as part of the country's first post-war licensing round. It operates the field alongside China's state-owned CNPC and Iraqi state-oil marketer Somo.

Lukoil had hoped to renegotiate its contract for the Yamama formation at West Qurna 2, where it recently began trial production. Yamama is the field's deeper formation. This is part of Lukoil's plan to double overall production capacity to 800,000 b/d by 2025.

The loss of BP and Lukoil would be the latest blow to Baghdad's upstream development plans. The oil ministry could also soon lose ExxonMobil, which has a 32.7pc interest in the 500,000 b/d West Qurna 1 field. ExxonMobil wanted to sell its stake for $400m, Ismael said, a price he considered "very cheap".

"The current investment environment in Iraq is inappropriate to keep major investors," he said. "All major investors are either looking for another market or for another partner. We, as an investment environment, are inappropriate for major partners."

Foreign firms have long been disgruntled by Iraq's failure to stand by the terms of their contracts, making already-low return rates uneconomical. And long delays to amending the technical service contracts prompted the exit of some of the country's largest upstream investors including Shell, which left the 240,000 b/d capacity Majnoon oil field in mid-2018. US firm Occidental also quit Iraq's upstream in 2015.

This has left is struggling to attract new upstream investment and leaving it reliant on an ever-shrinking group of oil companies to run its biggest fields.

By Adal Mirza and Rowena Edwards

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