Russian Oil Giant Hopes ConocoPhillips Deal Will Help Iraq Project

July 7, 2008 - 7:15 PM

Moscow (CNSNews.com) - Russia's top oil company, Lukoil, hopes that a U.S. oil company's acquisition of a 7.6 percent stake could boost its chances to retain a Saddam-era production-sharing agreement to develop Iraq's giant West Qurna fields.

Lukoil's president, Vagit Alekperov, said in televised remarks Wednesday the company would coordinate its efforts in Iraq together with its "strategic partner," ConocoPhillips.

The Russian company's vice-president, Leonid Fedun, told journalists in Moscow that Lukoil would have joint projects in Iraq in cooperation with the Houston-based company.

On Wednesday, Springtime Holdings Ltd., which represents ConocoPhillips, agreed to pay $1.988 billion for the 7.59 percent stake in Lukoil.

Under the deal, ConocoPhillips' share will be limited to a 20 percent stake. The agreement also places limits on ConocoPhillips' right to sell shares in Lukoil for four years.

ConocoPhillips and Lukoil stressed that the acquisition had the strong support of the Russian and U.S. governments. Russian President Vladimir Putin earlier this year met with ConocoPhillips CEO James Mulva, wishing the company success with its "plans to invest" in Russia.

Lukoil says it plans to be pumping crude in Iraq as early as 2005. It has also pledged to train up to 3,000 Iraqi oilmen at its Russian production facilities.

In 1997, a Lukoil-led consortium signed a $4-billion agreement with Iraq to develop the West Qurna-2 oil field over a 23-year period.

The Russian firm insists the mega-deal remains valid despite the fall of Saddam Hussein's regime, which canceled the contract in February 2003, just before the war that toppled him.

Last March, Lukoil and the Iraqi oil ministry signed a memorandum of understanding for the Russian company to help rebuild the Iraqi industry and train Iraqi oil workers. The two sides also reportedly reached an "understanding" on the West Qurna project.

In the wake of ConocoPhillips' acquisition, Lukoil expects to retain a controlling 51 percent stake in the West Qurna project, while ConocoPhillips is to be assigned a 17.5 percent stake.

Lukoil, which also has projects in Saudi Arabia, Iran and Egypt, is the only large Russian oil company that pumps crude oil abroad.

Last March, it also became the first Russian company to conclude an agreement with Saudi Arabia to develop natural gas deposits.

Lukoil has also been careful to counterbalance its Middle Eastern drive by buying into U.S. markets. Last January, it agreed to buy 795 gas stations in the U.S. from ConocoPhillips.

The $266 million deal, involving outlets in New Jersey and Pennsylvania, enabled Lukoil to double its market share in the northeastern U.S.

Lukoil now owns more than 4,700 gas stations worldwide, including about 2,000 in the United States.

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