Lukoil focuses on Middle East with aim of doubling foreign oil production

Looking at fields in Iran, Lebanon and Saudi Arabia following agreement with Mubadala Petroleum.

Lukoil started pumping 120,000 barrels per day, the minimum it needs to start getting paid by the government for its work at West Qurna 2. Above, the West Qurna oilfield central processing facility inShow more

Russia's Lukoil is targeting more Middle East projects, including in the UAE, as it seeks to double its share of foreign oil output.

The publicly listed producer, with headquarters in Dubai, is eyeing fields in Iran, Lebanon and Saudi Arabia and last week agreed to form a working group with Abu Dhabi’s Mubadala Petroleum to explore opportunities both inside and outside the Emirates, said Andrey Kuzyaev, the president of Lukoil’s overseas operations, citing a meeting with Suhail Al Mazrouei, the UAE energy minister who is also chairman of Mubadala Petroleum.

“We’ve been discussing various options for our cooperation so we’ve agreed to to set up a working group,” said Mr Kuzyaev in an interview on Saturday at the launch of commercial production at Iraq’s West Qurna 2 field.

Mubadala Petroleum declined to comment yesterday.

Lukoil, which has found it difficult to compete with Russian state-owned companies for the biggest oil projects on its home turf, hopes to increase foreign output to 20 per cent of its overall production, from 6 per cent at the start of this year. It will already be halfway to that target if it maintains West Qurna 2’s newly launched 120,000 barrels per day – the minimum it must sustain for 90 days before Lukoil can start getting paid by the Iraqi government.

Diversifying operations in the Middle East could also help it curry favour with analysts who have deemed Lukoil’s fee in Iraq too low – at US$1.50 per barrel, the cheapest of all the service contracts negotiated with Baghdad. On Friday, Lukoil ADRs trading in London closed at $53.15 each, down from a high of $66.50 in October.

“We are counting on investors and analysts to change their attitude to our operations in Iraq,” said Mr Kuzyaev. “They will see not only the risks but also the potential.”

Lukoil is awaiting seismic data on Iraq’s Block 10, a 5,500 square kilometre area close to West Qurna, where it and Japan’s Inpex won exploration rights in 2012.

In Saudi Arabia, negotiations are under way to develop a reservoir in the Empty Quarter with an estimated 550 billion to 650 billion cubic metres of tight gas. Although the kingdom has not allowed foreign companies access to the world’s second largest oil reserves, it has turned to international expertise to develop gasfields to help meet its growing power demand. Lukoil is conducting a feasibility study after receiving “a sign” from the Saudi government that it might be willing to raise gas prices, said Mr Kuzyaev.

“We are evaluating the reservoirs and developing the feasibility study to develop the gas,” he said through a translator. “The decision is not only going to be on us but on the entire market. We’ve been negotiating for quite a while and we received a sign.”

Lukoil has also readied a consortium to bid in Lebanon’s first offshore licensing round. The auction for as much as 865 million barrels of reserves has been delayed three times because of political instability, and is now scheduled for April 10.

Lukoil moved the headquarters of its international operations to Dubai last year, relocating 400 employees from Moscow.

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