Lukoil has declared a state of force majeure at its oil field in Iraq, sources told Reuters today, and Bulgaria is poised to seize the Burgas refinery as the state-owned company’s international operations of Russia suffered a blow under the pressure of the sanctions of USA.
The force majeure situation at the West Qurna-2 oil field in Iraq marks the biggest fallout so far from sanctions imposed on Russian oil companies Lukoil and Rosneft last month as part of US President Donald Trump’s bid to end the Russia-Ukraine war.
Four sources familiar with the matter told Reuters that Lukoil sent a letter to Iraq’s oil ministry last Tuesday, saying force majeure conditions prevented it from continuing normal operations in the area of the West Qurna-2 field.
Lukoil did not immediately respond to a Reuters request for comment today.
Lukoil is the Russian company with the largest exposure to international markets. Its bid to sell its foreign assets to Swiss commodities firm Gunvor failed last week after the US Treasury signaled that Washington opposed the deal.
Lukoil risks exiting its most valuable asset abroad
The West Qurna-2 field, located 65 kilometers (40 miles) northwest of the port of Basra, is one of the largest oil fields in the world and Lukoil’s most valuable overseas asset.
It accounts for about 9 percent of Iraq’s total oil production and currently produces about 480,000 barrels a day, two oil field officials said.
If the reasons behind the force majeure are not resolved within six months, Lukoil will halt production and withdraw from the project altogether, a senior Iraqi oil industry official said.
Reuters had reported last week that Iraq’s state oil company SOMO had canceled loadings of three cargoes of crude oil from Lukoil’s production at the oilfield because of the sanctions.
Three of the sources said Iraq had suspended all cash and crude oil payments to the company because of the sanctions.
Payments to Lukoil will remain frozen until there is a contractual adjustment that ensures a mechanism for developing the oil field and a way to make payments to entities that have not been sanctioned, one of the sources, an oil ministry official, said.
Meanwhile, about 4 million barrels of crude oil that had been earmarked for in-kind payments to Lukoil for November have been cancelled, the official said.
SOMO will not be able to continue its crude oil supply contract with Lukoil until the issues arising from the said sanctions are resolved, the source added.
Bulgaria is preparing to seize the Lukoil refinery in Burgas
Lukoil, citing force majeure as allowed under its contract, is seeking legal protection against penalties for failing to meet contractual obligations with the oil ministry, another Iraqi official said.
In an email sent on Friday, Lukoil terminated the services of all non-Russian personnel, a West Qurna-2 manager said, meaning only Russian and Iraqi Lukoil employees remain.
Also today, Bulgarian Prime Minister Rosen Zeliazkov said authorities are conducting inspections and implementing security measures at Lukoil’s oil refinery in Burgas.
The government is seeking to keep it operating while also preparing to take control of the refinery.
Last week, Bulgaria adopted legal changes that allow it to take over the refinery and sell it to a new owner.