UPDATE 3-Russia's Lukoil begins output from giant Iraq oilfield

Sat Mar 29, 2014 11:28am EDT

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(Adds Shahristani quote, context)

By Aref Mohammed

BASRA, Iraq, March 29 (Reuters) - Russia's Lukoil began commercial production from one of the world's largest untapped oilfields in Iraq on Saturday, as the country raises output to record levels.

Production from the giant West Qurna-2 is eventually expected to reach 1.2 million barrels per day (bpd), from an initial 120,000 bpd.

The field is one of several that form the backbone of Iraq's plans to revive its oil sector and lift the economy after decades of sanctions and war.

At a ceremony to inaugurate the field, Iraqi Oil Minister Abdul Kareem Luaibi said output of 400,000 bpd from West Qurna-2 by the end of the year would help Iraq reach a production target of 4 million bpd for 2014.

Output from Iraq, already the second-largest producer in OPEC, averaged 3.5 million bpd in February.

The launch of West Qurna-2, with recoverable reserves estimated at around 14 billion barrels, will allow Lukoil, which holds a 75-percent stake in the field, to more than double its overseas output.

"The start of production at West Qurna-2 is strategically important for LUKOIL," said CEO Vagit Alekperov in a statement.

Russia's no 2 oil producer saw its production rise 1.1 percent last year and is aiming for a 1.5 percent rise this year with the boost from West Qurna-2.

The world's leading oil companies have been expanding other giant fields in Iraq's south - Rumaila led by BP, West Qurna-1 run by Exxon and Zubair operated by Eni - since 2010 when they signed a series of service contracts with Baghdad.

Iraq has set an export target of 3.4 million bpd for 2014, including 400,000 bpd from the Kurdistan region, implying output of 4 million bpd, including oil used domestically.

Oil experts still see that as optimistic, but growth is returning thanks to the expanded capacity at southern export terminals and further rises from the fields of Majnoon, led by Shell and Halfaya, where PetroChina is the operator.

Iraqi exports are also due to get an additional boost next month from Kurdistan, which recently agreed to resume pumping 100,000 bpd as a "gesture of goodwill" aimed at easing a dispute with the federal government in Baghdad.

Kurdistan stopped exporting via the national network more than one year ago due to a row over payments for oil companies operating in the region, and has since finished building an independent pipeline to Turkey.

Baghdad claims sole authority to manage all the country's crude and refuses to cover the costs of companies that have signed contracts with the Kurds, rejecting those deals as illegal.

"We hope the differences will be solved and exportation of the oil produced in Kurdistan will begin next month," Deputy Prime Minister for Energy Hussain al-Shahristani said at the inauguration. (Additional reporting by Raheem Salman in Baghdad; Writing by Isabel Coles; Editing by Elaine Hardcastle)

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