MEOG: Iraq back on track

This week’s MEOG looks at Lukoil’s re-commitment to its main asset in Iraq and reports about a change in OPEC+ direction at its September meeting.

Russia’s Lukoil last week announced that it intends to increase oil production at the West Qurna-2 project in southern Iraq, providing stability for Baghdad as it seeks to increase output by 3mn barrels per day (bpd) by 2027.

During a conference call on August 27, the company’s VP for finance Pavel Zhdanov said that Lukoil hoped to achieve 480,000 bpd, an increase of around 80,000 bpd as the Phase 3 Yamama expansion comes into play.

“Next development stage of the project is to reach production of 480,000 bpd,” he said. “Next year we will increase production from the current 400,000 bpd to 450,000 bpd at the Mishrif formation.” He added: “This year, we plan to start 30,000 bpd production from pilot wells of the Yamama formation.”

This follows the drilling of a three-well pilot oil programme targeting the Yamama to produce 10,000 bpd per well over a three-month period.

Zhdanov noted that Q2 production had been below capacity at around 350,000 bpd owing to OPEC+ restrictions on output, but this marks an improvement from Q1, when oil flows ran at 307,500 bpd as the cartel’s cuts began to ease.

The company had been reportedly looking to sell its 75% stake in the technical service contract (TSC) for the project to Chinese companies, with a price of $1.4-1.5bn touted.

Meanwhile, the OPEC+ group is unlikely to make any changes to its oil output policy when members meet this week, according to numerous delegates.

If correct, this will give OPEC+ a total combined production target of 37.14mn bpd during September, up from the 36.74mn bpd August target. The increase in output follows the agreement reached in July to collectively ease production cuts by 400,000 bpd each month from August and pushing back the current April 2022 end date until the end of the year.

At this rate, it will take nearly 15 months for OPEC+ to increase production by the 5.8mn bpd withheld under the agreement reached in early 2020 as the group scrambled to balance the market.

In August, the US government urged OPEC and its allies to ramp up output to slow rising gasoline prices, which have been viewed as posing a challenge to economic recovery.