The government again refused to license LUKOIL’s Nadezhda site in the Baltic Sea

As Kommersant learned, the government again refused to LUKOIL (MOEX: LKOH) in licensing the Nadezhda block in the Baltic Sea, which the oil company has been trying in vain to obtain since 2016. This time, according to the Ministry of Natural Resources, the government is demanding that LUKOIL provide more up-to-date data on the environmental research program, which is necessary to confirm the safety of geological exploration in the area. The company has already provided this data in 2021. Now LUKOIL will apparently have to re-submit its application to Rosnedra and undergo lengthy approvals with the relevant departments.

The government returned to the Ministry of Natural Resources the documents for the Nadezhda site in the Baltic Sea, which LUKOIL asked to be included in the list for licensing, the ministry told Kommersant. The company submitted its application in the summer of 2023. The White House is now asking the company to update its environmental research program because the materials included a 2021 program. This means that LUKOIL will have to again send documents to Rosnedra (in the summer or winter window) and again obtain the necessary conclusions from departments, in particular, the Ministry of Natural Resources, the FSB, the Ministry of Defense and the Ministry of Energy. LUKOIL did not respond to Kommersant’s request.

In connection with the return of the previously submitted application for Nadezhda, LUKOIL will need to submit a new set of documents in the summer window – from June 1 to July 31, 2024, notes ProLegals senior lawyer Olga Zhukova.

Oil companies could obtain areas in internal waters and the territorial sea on an application basis (without holding an auction) within the boundaries specified by the company itself. But in 2023, the government significantly complicated the procedure for obtaining such plots. Now subsoil users are forced to undergo lengthy approvals just to first include areas in the list for licensing. Then Rosnedra collects applications from companies to obtain a license. If only one proposal is received, then the license is transferred to the subsoil user on an application basis; if there are more applications, an auction is held.

LUKOIL, being the only Russian oil producer in the Baltic Sea, has been unsuccessfully trying to obtain a license for the Nadezhda section since 2016 (oil production in the Baltic is about 400 thousand tons per year).

Currently, production at most other companies’ fields in the region is declining. The procedure for obtaining licenses on an application basis for exploration in the territorial sea and inland waters was adopted only in 2020, which allowed the Ministry of Natural Resources to send LUKOIL’s application for Nadezhda, agreed with the departments, to the government in 2021. But at the stage of coordination with the government, the authorities had questions about the impact of the development of the site on the Curonian Spit (included in specially protected natural areas). During the consideration of the application by the government, LUKOIL confirmed its compliance with environmental safety by sending data on environmental monitoring in the south-eastern part of the Baltic Sea – in the area of ​​​​planned exploration, as well as in the coastal part where the Curonian Spit passes.

However, at the end of 2022, the government refused LUKOIL a license without explanation, and the company’s documents were returned to the Ministry of Natural Resources. When making a decision to allocate a site, conclusions are required to exclude the possibility of causing damage to the Curonian Spit, stated then “Kommersant” is in the government. As a result, the Ministry of Natural Resources suggested that the company re-submit the application to adjust the boundaries of the requested area so that they do not affect the specially protected area. The company submitted such an application in 2023, but now the government requires LUKOIL to update the environmental studies that were already considered in 2021.

Dmitry Kozlov