LUKOIL is getting closer to Africa - Newspaper Kommersant No. 46 (7491) of 03/20/2023

LUKOIL is getting closer to Africa - Newspaper Kommersant No. 46 (7491) of 03/20/2023



LUKOIL and Italy's Eni are trying to expand their joint presence in the Republic of the Congo. The companies already own a gas production and liquefaction project in the country, from which LNG supplies should begin at the end of the year. At the new blocks, LUKOIL claims to be the operator. Lawyers do not see legal risks for Eni in such a partnership with a Russian company. But experts note production risks: production on the blocks may be complicated by the depth of the sea in the area of ​​their location.

LUKOIL and its longtime partner in foreign projects, the Italian company Eni, have submitted joint bids for Marine XXIV and Marine XXXI offshore units in the Republic of the Congo. According to the oil company's vice-president for America, Africa and the Middle East, Ivan Romanovsky, LUKOIL's share in the project could reach 43%.

The project is planned to be implemented on the basis of a production sharing agreement (PSA). “Technically, we were declared winners due to the fact that we were the only companies that applied for the acquisition of these blocks,” the top manager explained. The partners are continuing discussions with the government of the Congo on the final commercial terms for the development of the blocks. LUKOIL did not give additional comments on the estimated reserves of the plots and the possible level of production.

LUKOIL has been operating in the Republic of the Congo for several years. Since mid-2019, he, in partnership with Eni (65%) and the State Oil Company of the country (10%), owns one of the neighboring blocks - Marine XII. LUKOIL bought a blocking stake from the structure of the British New Age M12 Holdings Limited for $800 million. By that time, the project had already reached a positive free cash flow. Since then, the Russian company has invested another $155 million in it. LUKOIL estimates its total investment in the project at $1.96 billion, taking into account the costs of the purchase and the funds already spent.

Marine XII will be the first project in which LUKOIL will receive its own LNG. In Russia, the company's participation in projects for liquefaction and subsequent export of LNG is seriously restricted by law.

The launch of a floating gas liquefaction plant in the Republic of the Congo is scheduled for December 2023. At the first stage, production will amount to 600 thousand tons per year with the possibility of increasing to 3 million tons per year by 2025 due to the commissioning of a second floating unit. In addition, hydrocarbon production will also increase - from the current 1 million tons of oil and 1.5 billion cubic meters of gas per year to 1.7 million tons and 5.5 billion cubic meters.

Eni will deal with the sale of LNG from Marine XII, sales markets depend on the situation at the time of the start of supplies, Ivan Romanovsky specified. According to him, LUKOIL is discussing with the authorities of the Congo entering into new projects in the country not only as a minority shareholder, but also as an operator.

As Sergey Kondratiev from the Institute of Energy and Finance notes, negotiations on LUKOIL's participation in the Marine XXIV and Marine XXXI blocks have been going on since 2018, when the qualifying round took place, but have not yet been completed. At the same time, Mr. Kondratyev notes, these blocks already belong to the deep-water and sub-deep-water shelf, so their development may be more difficult than Marine XII.

Despite large-scale formal and voluntary sanctions against Russian structures around the world, lawyers see no legal restrictions on LUKOIL's participation in foreign projects or the risks of cooperation for Eni. Thus, Ekaterina Makeeva, partner and head of sanctions practice at AB A-PRO, explains that European companies are prohibited from participating in Russian legal entities in the energy sector or joint ventures with them, as well as companies registered in a third country but operating in the Russian Federation. Projects in third countries based on PSA are not subject to these conditions.

“If both companies act solely in their own interests on terms agreed with the Congolese government, there is no cooperation between them that can be considered as financing or investing in the Russian energy sector, then I think Eni is not in danger,” Ms. Makeeva said. However, in her opinion, partners “should take into account the possible increase in sanctions pressure to gradually squeeze Russian business out of the international market.”

Olga Mordyushenko, Dmitry Kozlov



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