LUKOIL invested in the shelf of Kazakhstan

As Kommersant found out, LUKOIL (MOEX: LKOH) paid $200 million for entering into joint projects with Kazmunaigas for the development of the Kalamkas-Sea, Khazar and Auezov fields on the Caspian shelf. The deal also involves the payment of an additional premium of $100 million upon fulfillment of conditions precedent for the project. LUKOIL is expanding its partnership in Kazakhstan against the backdrop of sanctions against Russian oil, as well as additional restrictions on oil production in the Russian Federation against the backdrop of the OPEC+ deal.

The amount of the transaction for LUKOIL’s entry into the project for the development of the Kalamkas-Sea, Khazar and Auezov fields in the Caspian Sea amounted to $200 million, Kazmunaigas disclosed in its reports. In February 2023, the Kazakh state company sold LUKOIL a 50% stake in the Kalamkas-Khazar Operating company, which owns the licenses for these fields. LUKOIL may pay an additional premium of $100 million if certain conditions for the project are met. LUKOIL and Kazmunaigas did not respond to Kommersant’s request.

Oil reserves of the Kalamkas-Sea and Khazar blocks are estimated at approximately 80 million tons, investments in the project are $6 billion. Production should begin in 2028. The fields are located approximately 60 km from the coast, the sea depth within them is up to 10 m. In February 2023, the head of Kalamkas-Khazar Operating, Kurmangazy Iskaziev, said that the company plans to begin construction of an offshore drilling platform on the Kalamkas Sea at the end of 2024.

LUKOIL is one of the main partners of Kazmunaigas in the Kazakh sector of the Caspian Sea. In addition to the listed projects, LUKOIL also owns 49.9% in the Al-Farabi project. The partners planned to develop the Zhenis block in the Caspian Sea with equal participation, but as a result of drilling they did not find commercial oil reserves, and it was decided to close the project. Also onshore in Kazakhstan, LUKOIL owns shares in two existing production projects – Tengiz (5%) and Karachaganak (13.5%). Also, LUKOIL and KazMunayGaz have a joint venture in the Russian sector of the Caspian Sea to develop the Central (LUKOIL and Gazprom Neft – 25%) and Khvalynskoye (LUKOIL – 50%) gas fields.

LUKOIL, under the conditions of sanctions and restrictions from OPEC+, is trying to expand its presence in friendly foreign countries. As a result of EU and US sanctions imposed in 2022, Russian oil companies were forced to redirect oil from the European market to Asia. Supplies of Russian oil to India and China by sea still require a significant “sanction” discount to the world price, but oil from Kazakh projects is not subject to such restrictions. In addition, in the Russian Federation, LUKOIL does not have many opportunities to significantly increase production, including due to the fact that in recent months the Russian Federation has assumed additional obligations as part of the deal with OPEC.

For Kazakhstan itself, the development of the Caspian shelf is important given the decline in production in onshore fields. According to KazMunayGas reports, in February of this year it sold 50% of the Karaton Podsoleva geological exploration block in the Atyrau region to Tatneft for $18.2 million.

According to the technological development scheme, Kalamkas may be similar to Kashagan, where, due to the shallow depth of the sea, drilling is carried out from artificial islands, recalls Victor Katona from Kpler. But the resource base of Kashagan is several times larger than Kalamkas, the development of which will be less profitable. Depending on the density of the oil, several options for its removal can be considered. If the oil is light, then connection to the Caspian Consortium pipeline is possible, the analyst believes. At medium density, sea deliveries are likely to the Azerbaijani port of Sangachali, then to the Baku-Tbilisi-Ceyhan main oil pipeline, as well as supplies to refineries in Kazakhstan in the context of depletion of medium-heavy oil reserves in the onshore part of the country.

Dmitry Kozlov