Lukoil to Spend at Peak $20 Billion as Iraqi Production Starts

OAO Lukoil (LKOH) will keep spending at $20 billion this year even without last year’s acquisitions as it starts output in Iraq, allowing the second-largest Russian oil producer to begin recovering its investment from April or May.

“This is our peak year” for investment, Chief Executive Officer Vagit Alekperov said today in Moscow. Lukoil is also upgrading refineries, investing in Uzbek gas and preparing to drill the Caspian Sea Filanovsky deposit, Alekperov said.

Lukoil will study borrowing options for the second half depending on economic issues such as the ruble and oil, he said.

“The number looks higher than the one Lukoil guided back in March 2013 -- $18.2 billion,” Aleksandr Kornilov, an oil and gas analyst at Alfa Bank, said today by e-mail.

The West Qurna-2 in Iraq will produce the 120,000 barrels a day needed under Lukoil’s operating deal to start a so-called investment-recovery phase in April or May, Alekperov said. It still plans for 400,000 barrels a day by year-end, the CEO said.

The start of production, in March or April, will solidify Lukoil’s position as the Russian leader in overseas oil and gas. The company is developing West African, Azeri, Kazakh and Norwegian projects as Russia excludes it from offshore Arctic prospects at home. It plans to add to overseas business after Mexico ended a 75-year state oil monopoly, Alekperov said.

“It is a new era,” he told reporters gathered at a Lukoil gas station. “A number of large countries with unique oil and gas reserves are making steps to attract investment.”

The company plans to identify projects with the state-run Petroleos Mexicanos by autumn, seeking to improve current output as well as to explore for fresh deposits in the Gulf of Mexico, Alekperov said. Lukoil also plans to return to projects in Iran after sanctions and other investment hurdles are lifted. It’s still seeking to sell its stake in Venezuela’s Junin-6 deposit.

“Investors tend to be concerned about Lukoil increasing its international activity outside Russia,” Kornilov said. “It’s important to see what exactly Lukoil is going to do in Mexico.”

To contact the reporter on this story: Stephen Bierman in Moscow at sbierman1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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