Lukoil of Russia and Statoil of Norway on Tuesday formally signed a contract with Iraqi authorities to develop the vast West Qurna 2 oil field. The untapped reserves are seen as critical to Iraqi reconstruction efforts.
“This is unquestionably an incredible deal for Iraq,” said Alex Munton, a Middle East analyst for Wood Mackenzie, a research and consulting firm based in Edinburgh. “The overwhelming beneficiary is the Iraqi state, as it will gain almost all of the revenues associated with the project,” he said.
Lukoil and Statoil had secured the winning bid on the field in Basra Province, in the south of the country, during a second licensing round held a few weeks ago. The deal still requires final approval from Iraqi authorities, likely to be the country’s council of ministers, analysts said.
Companies like Lukoil and Statoil are eager to snap up fields in Iraq — even on terms that may offer little immediate reward — to deepen their involvement in a country that appears poised to become a top-tier producer.
“The returns will be fairly negligible,” Mr. Munton said. “The companies have the opportunity to recover everything they spend and to get a wafer-thin profit on top, but this is really an opportunity to get into Iraq.”
Iraq has reserves of 115 billion barrels and possibly more, Mr. Munton said, quoting estimates by his firm.
But fields like West Qurna 2, discovered in the early 1970s, have been neglected for decades. Violence in the aftermath of the invasion led by the United States to oust the Iraqi dictator Saddam Hussein has kept the country from recovering its prewar output levels.
Lukoil was originally granted rights to develop West Qurna 2 in 1997 by Mr. Hussein, but he rescinded the contract early this decade.
Iraq currently produces 2.5 million barrels a day, of which about 1.9 million are exported. But analysts said the country could more than triple that level of production over the coming decade.
The consortium led by Lukoil offered to develop the West Qurna field in exchange for $1.15 for each barrel of oil it extracted. That offer beat out bids from companies including BP of Britain and Total of France.
The consortium foresees producing up to 1.8 million barrels a day at the field, which Lukoil has estimated contains total recoverable reserves of 12.9 billion barrels.
Some analysts said there were dangers for Iraq in signing deals that were so favorable to its own interests.
“The weakness of a service contract is that the oil companies may need to spend money very freely to develop the field, and if those costs spiral, that would not be good for Iraq,” said Valerie Marcel, an associate fellow with Chatham House, a research institute based in London.
“For this to be a win-win deal for the companies and for Iraq, the work must be done at reasonable cost,” Ms. Marcel said.
Oil revenues make up as much as 90 percent of the Iraqi national budget, underlining the importance of the deal for the country, she said.
Statoil said Tuesday that it had renegotiated the terms of the deal to give it a somewhat larger stake than was originally foreseen.
Under the new terms, Statoil will eventually hold 18.75 percent of the consortium, with Lukoil holding 56.25 percent and a partner from the Iraqi state holding the remainder, said Ola Aanestad, a spokesman for Statoil.
The new arrangement was “more balanced from Statoil’s point of view,” Mr. Aanestad said.
Mr. Munton said the biggest potential threat hanging over the deal probably was the future security of Iraq. Even so, he acknowledged that the companies could eventually grow frustrated with the terms of the contract.
“There is a danger that the companies, within a few years, may begin to rethink whether they have a continued interest in investing as the returns are so low,” he said.