Chevron Gets One Year of Exclusive Talks on Iraq's West Qurna 2 Field After Lukoil Exit

Chevron now holds one year of exclusive negotiating rights to take over operatorship of West Qurna 2, one of Iraq's largest oilfields, which Russia's Lukoil operated until U.S. sanctions pushed it out.

The exclusivity was secured through a $200 million advance on a prospective signing bonus. That figure comes from local Iraqi media and a senior source close to Iraq's Oil Ministry, who confirmed it to OilPrice.com. Neither Chevron nor the ministry has published the terms.

What Iraq's oil minister says

Oil Minister Bassem Mohammed Khudair Al-Abadi told the Iraqi News Agency that Chevron is in talks with the ministry over West Qurna 2 following Lukoil's withdrawal due to sanctions. Chevron is also discussing development of four blocks in the Nasiriyah field, he said.

The talks build on four preliminary agreements Chevron signed with the Oil Ministry in February. They cover the Nasiriyah field, four exploration blocks in Dhi Qar province, the Balad field in Salahaddin province, and the handover of West Qurna 2.

The handover follows U.S. Treasury blocking sanctions that put Lukoil and Rosneft on the Specially Designated Nationals list. Those measures were aimed at cutting revenue that supports Russia's war in Ukraine.

The field

West Qurna 2 sits about 65 kilometers northwest of Basra and holds roughly 14 billion barrels of reserves in place. Under Lukoil it produced around 400,000 barrels per day, about 9% of Iraq's output at the time. It topped 650,000 bpd for extended stretches in August and September 2017.

A senior source close to the Oil Ministry told OilPrice.com that Baghdad expects Chevron to double output within a relatively short time, with a working peak target of 800,000 bpd.

Chevron CEO Mike Wirth has said the company remained months away from a definitive long-term contract. The exclusivity window gives both sides until roughly this time next year to close it.

Not just Chevron

The minister said Iraq is also negotiating with ExxonMobil under a memorandum of understanding covering the Majnoon oilfield, export infrastructure and a seawater supply project meant to deliver 2.5 million bpd to maintain reservoir pressure.

Other U.S. names are lining up too. The ministry has activated a contract with Halliburton for the Nahr Bin Umar and Sindbad fields. It has an MoU with ConocoPhillips on the Akkas gas field, where SLB is working on the first phase, and has activated a contract with HKN Energy for the Hamrin field.

Khudair said Iraq's contracts remain service contracts but are shifting from the 2010 licensing-round model toward profit-sharing mechanisms rather than production-sharing agreements. He said U.S. and European companies favor the revised approach.

The risks

Iraq's record is the obvious hurdle. Transparency International's Corruption Perceptions Index has consistently ranked the country among the worst performers, citing embezzlement, procurement fraud, bribery and political interference. ExxonMobil previously withdrew from the Common Seawater Supply Project, the same infrastructure now back on the table under its new MoU.

Then there is geography. Iraq, unlike Saudi Arabia and the UAE, has no major operational pipeline that bypasses the Strait of Hormuz. Its main fields are around Basra, and almost all crude exports leave from Persian Gulf terminals. About one-fifth of the world's traded oil and gas passed through the strait before the Iran conflict began in February, and shipping disruption has since pushed Gulf governments to hunt for alternative routes.

More barrels from West Qurna 2 are only worth as much as the ability to ship them.

A volatile backdrop

Brent crude settled at $108.79 a barrel on Tuesday, Oct. 20, down 76 cents, after touching $111.99 earlier in the session, its highest level in five months. WTI settled at $101.79.

Iraqi Prime Minister Ali al-Zaidi ordered the indefinite closure of the Sheeb border crossing with Iran, effective Wednesday, according to an official who spoke to Al Jazeera. The official said other crossings are expected to close in coming days. The Iraqi government has not given a reason.

Meanwhile, Iranian officials are hardening their public line. Supreme National Security Council secretary Mohsen Rezaei said "not a single gram of enriched uranium will be removed from Iran," and that there will be no negotiations until Washington takes steps to build trust.

Chevron and Baghdad have not announced the final signing bonus, the fee structure or the production timeline. Whether a deal closes within the one-year window will depend on those terms and on whether Iraqi crude can get out of the Gulf.