Iraq signs preliminary agreement with Chevron to manage West Qurna-2 project

MOSCOW. Feb 24 (Interfax) - Iraq's Basra Oil has signed a preliminary agreement with Chevron Corp. on the principles for transferring management of the West Qurna-2 field project, the Iraqi prime minister's press service said.

Basra Oil and Russia's Lukoil had previously signed an agreement on the temporary transfer of the contract to the Iraqi company and the normalization of all financial obligations between the parties.

Basra Oil, Lukoil and Chevron also signed a framework agreement allowing for the temporary transfer of the contract to the Iraqi party. Basra Oil will subsequently transfer the contract to the American company after completing negotiations and agreeing on the terms of a new contract. This agreement guarantees Chevron exclusive negotiating rights for one year based on criteria agreed upon by both parties.

West Qurna-2 produces 460,000 barrels of oil per day or 0.5% of the world's output. The field is being developed on the basis of a service contract signed by Lukoil in January 2010. Iraq's state North Oil Company owns 25% of the project. The contract's initial term was 25 years. West Qurna-2 has initial recoverable reserves of about 14 billion barrels. Production was supposed to rise to 800,000 bpd. Lukoil is fully financing the costs across the project. Following the compensation of historical losses, Lukoil has started obtaining compensation of all the costs as a share in oil production. In addition, Lukoil receives remuneration in proportion to its 75% interest of $1.15 payable to project parties for each barrel of oil and pays profit tax.

Lukoil declared force majeure on the West Qurna-2 field after the UK and U.S. imposed sanctions against the company in October. The sanctions forced the company to put its international assets up for sale.