Russia and Iraq have agreed to work on restoring contracts that they signed before the U.S.-led invasion of Iraq in 2003, Russia's energy minister said after the two countries' prime ministers met on Friday.
Russian oil major LUKOIL (LKOH.MM: Quote, Profile, Research, Stock Buzz), in consortium with other Russian firms, signed a $3.7 billion deal to develop Iraq's West Qurna oil field in 1996, when Saddam Hussein was in power.
The goal has been set to restore the contracts concluded between Russian and Iraqi companies before the war, Energy Minister Sergei Shmatko said, adding that a working group on the issue would convene in the near future.
I believe that this is a very big move, he told reporters following the meeting between Russian Prime Minister Vladimir Putin and Iraq's Nuri al-Maliki in Moscow, at which Putin accepted an invitation to visit Iraq.
Saddam's government tore up the LUKOIL deal in 2002, months before the invasion, saying the Russian company had done no work at West Qurna since signing it and had failed to fulfil its contractual obligations.
Russia opposed the invasion in 2003.
LUKOIL has since lobbied for the current government to honour Saddam-era contracts.
JP Morgan said in March last year that, according to Russian estimates, production at the field was expected to peak at 700,000 barrels per day. Reserves could total 4.5-7.3 billion barrels... the bank said.
Russia agreed last year to write off most of Iraq's remaining $12.9 billion debt and signed a separate deal to open up the country to $4 billion in investment from Russian firms but the agreement did not help LUKOIL win back the Qurna deal.
Iraq has previously said LUKOIL would have to compete with other firms for the contract. But Baghdad has renegotiated and signed another Saddam-era deal, with the Chinese National Petroleum Company.
Iraq remembers well Russian companies which had helped us in different areas including oil and gas industry ... We are convinced the Russian companies can and should be our important partners, Maliki said in a statement.
Shmatko said Putin had received guarantees that Russian companies would receive equal treatment in drilling and oil services tenders announced by the Iraqi government.
Iraq last year opened up some of its most prized oil and gas fields to international firms that have been excluded for decades, part of new deals that could more than double its output within a few years.
Two of the oilfields -- Majnoon and West Qurna Phase II -- are classed as super giants and between them could produce 1.2 million barrels per day (bpd) when fully developed.
A LUKOIL source told Reuters in February the company would be interested in bidding for two fields offered in a round involving 11 oil and gas fields, including West Qurna and Rumaila.
Shmatko praised the Iraqi government's effort to provide security for foreign workers and said Russia had also received tempting offers to work on reconstruction and upgrading of Iraqi power plants.
Putin said Russia and Iraq also discussed military cooperation, which, he said, was in a stage of practical contacts. Soviet Union supplied Saddam's army with weapons and Russia is keen to regain former Soviet export markets. (Reporting by Gleb Bryanski, editing by Anthony Barker)