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U.S. oil major ConocoPhillips (COP) and Russian oil firm OAO Lukoil Holdings (LKOH.RS) have agreed to accept the terms set by Iraq to develop the West Qurna-1 oil field in southern Iraq, Lukoil said Tuesday.

"We have accepted the previous conditions set out by Iraq's Oil Ministry and will start talks tomorrow in Baghdad," a Lukoil spokesman said.

In a joint bid, Lukoil and ConocoPhillips accepted the ministry's initial terms of a maximum remuneration of $1.90 a barrel of extra oil produced offered at an auction in June.

Iraq's first attempt in June to auction off contracts for eight fields to foreign companies proved unsuccessful due to the unattractive financial terms offered.

Lukoil and ConocoPhillips were among the companies that declined to accept the conditions offered then, but changed their minds due to a recovery in the oil price from levels seen at the start of the year, the Lukoil spokesman said.

"We decided to review the terms, taking higher oil prices into consideration," the spokesman said. He declined to say how much it would cost to develop West Qurna-1, which has proven crude oil reserves of 8.6 billion barrels. He also didn't say when a contract could be signed.

A senior Iraqi Oil Ministry official said last week it hoped to award the license for West Qurna-1 by the end of October or early November.

Lukoil's Chief Executive Vagit Alekperov met Iraq's Oil Minister Hussein al-Shahristani in Baghdad last Tuesday.

Moscow-based Alfa Bank suggests Lukoil and ConocoPhillips may have agreed to a low margin deal in Iraq to position themselves for future deals in the oil-rich country. "This could give them a huge operating base in Iraq, which may lead to more lucrative deals down the road," said Alfa Bank analyst Ron Smith.

In 1997, Lukoil signed a multibillion dollar contract to explore the West Qurna-2 oil field but was expelled before the invasion of Iraq because of disagreements with the Saddam Hussein regime. Lukoil is hoping to revive that deal.

A rough estimate by Alfa Bank shows that West Qurna-1 field might add some 2% to Lukoil's total Ebitda.

Lukoil - is 20%-owned by ConocoPhillips - is Russia's second biggest oil producer with daily output of 1.91 million barrels.

Company Web site: www.lukoil.com

-By Jacob Gronholt-Pedersen, Dow Jones Newswires; +7 495 937 8445; jacob.pedersen@dowjones.com