CONOCOPHILLIPS has agreed a partnership with Lukoil, the Russian energy company, that could deliver the keys to West Qurna, a huge Iraqi oilfield and the first participation by an American firm in the oil industry of the war-torn country.

The strategic alliance, which includes a 30 per cent interest in oilfields in the Russian Arctic, was announced yesterday after Conoco’s $2 billion purchase of the Russian Government’s 7.6 per cent stake in Lukoil. The American firm said it would seek to buy a further 2.4 per cent in the market and ultimately raise its Lukoil stake to 20 per cent within two to three years.

Conoco will acquire 30 per cent of certain Lukoil interests in Timan-Pechora, a new hydrocarbon province in Northern Russia, but the real prize, analysts say, is in Iraq, where Lukoil claims rights over West Qurna, an Iraqi oilfield with potential reserves of eight billion barrels.

Lukoil’s interest in West Qurna was threatened by the change of regime that followed the American invasion of Iraq, which put a question mark over Saddam-era oil deals. However, the partnership with a US oil company should improve Lukoil’s image, Christopher Granville, chief strategist at United Financial Group, the Moscow brokerage, said.

“(West Qurna) is arguably the most significant part of the deal,” he said. “Lukoil’s chances look much better with a US company and, for Conoco, this is the largest of the easily developable oilfields in Iraq.”

The two firms said they would seek to confirm with the Iraqi Government Lukoil’s rights in West Qurna under a production-sharing agreement. If successful, Lukoil would assign 17.5 per cent of the rights to ConocoPhillips.

The West Qurna contract was agreed in 1997 with the Saddam Hussein regime and is now threatened by officials in the new government who have suggested that Lukoil must bid again.

In late 2002 the Iraqi Government attempted to cancel Lukoil’s contract, claiming nonperformance by the Russians. Since then Lukoil has engaged in frantic diplomacy, seeking to recover its rights by arguing that UN sanctions prevented it from drilling wells.

In an attempt to mollify officials in the new government, Lukoil has agreed to train 100 Iraqi oil technicians at its facilities in Western Siberia.

Lukoil highlighted the political significance of Conoco’s investment by flying a US flag from its Moscow headquarters yesterday while Vice-President Leonid Fedun welcomed the purchase as the “greatest privatisation deal in the history of the Russian federation”.

Conoco secured the blessing of the Kremlin in meetings between Jim Mulva, the US company’s chief executive, and President Putin, who told the American that he could “count on my support”.

It was enough to deter significant rival bids and the government sale to Conoco is seen as an attempt to reassure foreign investors as the Kremlin tightens its grip on Yukos. The main rival to Lukoil is facing bankruptcy over $7 billion in unpaid taxes.

The strategic partnership will also give Conoco a larger stake in Russian oil, a key objective for the company, which has declining North American and European production.

Conoco has agreed to pay $370 million for a 30 per cent interest in an oil producing venture in Timan-Pechora in northern Russia, which is expected to produce 200,000 barrels per day by 2008. The American company already owns a half share in Polar Lights, a Russian joint venture with Rosneft, producing 14,000 barrels per day.

OLD COMRADE, NEW OIL TYCOON

Vagit Alekperov, the president of Lukoil, has oil in his veins.

Born in Azerbaijan in 1950, he learnt about the business from his father, who spent his working life in the oilfields of Baku — one of the first centres of the international petroleum business.

After studying and training in Azerbaijan, the young Alekperov earned his reputation as an industry expert in Siberia, and by 1991 had risen to the rank of acting minister of fuel and energy in the last Soviet government.

He used his position to oversee the consolidation of several of the Soviet Union’s top oil producers into one, and then assumed presidency of the new firm — Lukoil.

Nicknamed “The General”, “Alek the First” and “The Don”, Dr Alekperov is rated by Forbes magazine as Russia’s tenth richest person with a fortune of $2.7 billion (£1.5 billion).

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