(Bloomberg) -- Lukoil PJSC is seeking to develop new oilfield projects in Iraq even as slumping crude prices and OPEC+ supply cuts have compelled the company to slash production in the country.
Russia’s second-biggest oil producer pumped 400,000 barrels a day last year at its West Qurna 2 project in southern Iraq, and it had planned to boost output there in 2020. Instead, Lukoil has reined in production to 280,000 barrels a day to help Iraq comply with its quota under the global supply-cuts agreement, said Egor Zubarev, managing director of the company’s Middle Eastern business.
While it expects for now to keep output levels unchanged, Lukoil will “soon” submit proposals to Iraqi authorities to develop a separate area in the south known as Block 10, Zubarev said in an email.
Oil prices are 36% lower this year since the coronavirus gutted fuel demand, and Lukoil, like other producers, has had to postpone its immediate plans to raise output. Iraq, OPEC’s second-largest producer, ordered international companies working at its fields to pump less oil after the Organization of Petroleum Exporting Countries and allies including Russia agreed in April to take nearly a 10th of the world’s supply off the market.
“The current situation forces us and our partners to revise our plans to see how they correspond to the needs of the time,” Zubarev said. Still, Iraq is “undoubtedly” one of Lukoil’s “prioritized regions,” he said. Lukoil has a 75% stake in West Qurna 2 and is working on projects to explore other parts of the field as well as the separate Block 10 area.
Iraq’s financial constraints present a challenge. Lower crude prices are putting pressure on the government’s budget, and some oil projects have slowed due to Baghdad’s shortage of cash, Oil Minister Ihsan Abdul Jabbar said Tuesday in an online conference.
When the country is ready once again to ramp up production, it will need upgraded export facilities and pipelines, according to Zubarav.
Iraq’s current output is limited to about 3.6 million barrels a day, under the OPEC+ deal. It has long targeted production of 5 million barrels daily, with a capacity to export about the same amount.
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