Lukoil declares Force Majeure in Iraqi oilfield following US sanctions

Four sources familiar with the situation said that Lukoil declared force majeure on Iraq's West Qurna-2 giant oilfield on Monday after Western sanctions against the Russian oil major hindered its operations.

Lukoil didn't immediately respond to an inquiry for comment.

Last month, the United States and Britain imposed sanction on Rosneft, Russia's largest oil company, and Lukoil.

Three sources confirmed that Iraq had stopped all crude and cash payments to the company.

The four sources claim that Lukoil wrote to Iraq's Oil Ministry last Tuesday, stating there were conditions of force majeure which prevented it from carrying out normal operations on the West Qurna-2 oil field.

A senior Iraqi oil official stated that if the cause of the force majeure is not resolved in six months, Lukoil would shut down production and abandon the project.

Last week, it was reported that Iraq's SOMO state oil company cancelled the loading of three crude oil shipments from Lukoil equity production on the oilfield due to sanctions.

Lukoil’s prized asset abroad is West Qurna-2. It's one of the largest oilfields in the world. It is situated 65 kilometers (40 miles), northwest of Basra, the southern port.

Around 9% of Iraq's total oil production comes from this field. Two oilfield officials reported that the field is currently producing 480,000 barrels of crude oil per day.

According to one source, an official from the oil ministry, crude oil volumes that were allocated as in-kind payments for Lukoil's November shipment - approximately 4 million barrels of oil - had been cancelled.

The oil ministry official stated that payments made to Lukoil by its Iraqi operations are frozen due to U.S. Sanctions until a contract adjustment is secured that provides a method for developing the field and a means to pay non-sanctioned parties. Iraq also cannot do business with companies that fall under U.S. Sanctions.

Source: SOMO won't be able continue to supply crude oil to Lukoil unless the sanctions behind them are resolved.

Another Iraqi official confirmed that the contract terms for Lukoil's declaration of force majeure are approved and the company seeks legal protection from penalties for not meeting contractual obligations.

Another source, a manager from West Qurna-2, said that Lukoil terminated all non-Russian staff in an email sent out on Friday. Only Russian and Iraqi Lukoil employees remain.

Rosen Zhelyazkov, Bulgarian Prime Minister, said on Monday that authorities were conducting inspections at Lukoil Burgas Oil Refinery and implementing safety measures. The government is attempting to maintain the refinery's operation as it prepares to take control of the facility.

Last week, Bulgaria passed a law allowing the country to buy the refinery from its current owner and then sell it on to another. (Reporting and writing by Aref Mohammad and Ahmed Rasheed, Yousef Sabah and Ahmed Rasheed. Editing by Joe Bavier and Jason Neely.

(source: Reuters)