Lukoil declares force majeure at Iraqi oilfield after US sanctions

Lukoil has declared force majeure at Iraq’s giant West Qurna-2 oilfield, four sources with knowledge of the matter said on Monday, after Western sanctions on the Russian oil major hampered its operations.

Lukoil did not immediately respond to a Reuters request for comment.

The United States and Britain imposed sanctions on Rosneft and Lukoil, Russia’s two largest oil companies, last month.

Iraq has since halted all cash and crude payments to the company, three of the sources said.

Lukoil sent a letter to Iraq’s oil ministry last Tuesday saying there are force majeure conditions preventing it from continuing normal operations at the West Qurna-2 field, the four sources said.

If the reasons behind the force majeure are not resolved within six months, Lukoil will shut production and exit the project entirely, a senior Iraqi oil industry official said.

Reuters reported last week that Iraq’s state oil firm SOMO cancelled loadings of three crude oil cargoes from Lukoil’s equity production at the oilfield over the sanctions.

West Qurna-2, one of the world’s largest oilfields, is Lukoil’s most prized foreign asset. It is located 65 kilometres (40 miles) northwest of the southern port of Basra.

The field accounts for around 9% of Iraqi total oil production. It is currently producing around 480,000 barrels per day, two oilfield officials said.

Crude oil volumes allocated for in-kind payments to Lukoil for November – about 4 million barrels – have been cancelled, said one of the sources, an oil ministry official.

Payments to Lukoil generated by its Iraqi operations remain frozen under U.S. sanctions until there is a contractual adjustment that secures a mechanism for developing the oilfield and a way to make payments to non-sanctioned entities, the oil ministry official said, adding that Iraq cannot deal with companies under U.S. sanctions.

SOMO will not be able to continue its crude oil supply contract with Lukoil until the issues behind these sanctions are resolved, the source added.

Lukoil’s force majeure declaration is approved under the terms of its contract and the company is seeking legal protection against penalties for failing to meet contractual obligations with the oil ministry, another Iraqi official said.

Lukoil in an email sent on Friday terminated the services of all non-Russian foreign staff, another source said, a manager at West Qurna-2. This means only Russian and Iraqi Lukoil staff remain.

On Monday, Bulgaria’s Prime Minister Rosen Zhelyazkov said authorities are conducting inspections and implementing security measures at Lukoil’s Burgas oil refinery as the government looks to sustain its operation while preparing to seize control of the site.

Last week, Bulgaria adopted legal changes allowing it to take over the refinery and sell it to a new owner.