ConocoPhillips eyes Iraq after Lukoil deal

ConocoPhillips took a plunge into the Russian oil market yesterday, announcing a strategic alliance and a minority stake in Lukoil in a deal that may help the US oil group gain access to Iraq's lucrative oil reserves.

The third-largest US oil and gas group paid $1.99bn (£1.11bn) for the government's remaining 7.59 per cent stake in Lukoil, but plans to take its stake to 20 per cent over the next three years.

Through a joint-venture with Lukoil, Conoco intends to bid for the right to develop oil fields in Iraq. Lukoil won rights to develop the West Qurna field under Saddam Hussein in 1997, but this agreement has since become the subject of a dispute and it is not yet known whether Iraq's new government will recognise the contract.

Lukoil now has a powerful US lobbying partner to help it try to secure the contract for West Qurna, which is considered one of the world's largest oil fields with reserves estimated at about 20 billion barrels. Conoco is aiming to gain a 17.5 per cent interest in a production-sharing agreement.

Conoco's investment is one of the most significant by a Western company in Russia since BP paid more than $7bn last year to establish a joint-venture with TNK. But it also comes amid turmoil in the Russian oil industry, with a tax dispute between the Kremlin and Yukos. The founder of Yukos, Mikhail Khodorkovsky, is facing charges of fraud and tax evasion and the company may be carved up.

Teaming up with Lukoil will add billions of barrels of reserves to Conoco's books. The Russian company has the world's second largest oil reserves after ExxonMobil.

Conoco and Lukoil have also agreed to set up a 30-70 joint venture to develop Russia's northern Timan-Pechora oil region. Conoco will pay $370m for its stake in the venture, which is expected to produce 200,000 barrels of oil a day by 2008.