Lukoil has since 2010 extracted 15 million tons of oil from the Yuri Korchagin and Vladimir Filanovsky fields, situated within the north-central portion of the Russian sector of the Caspian Sea, close to the agreed-on maritime border between Russia and Kazakhstan. Russia’s largest privately-owned oil producer had in June 2017 reached the previously set mark of 10 million tons in terms of oil production at the two fields, which have currently entered their second development phases. According to the company’s announcement, further implementation of Vladimir Filanovsky’s drilling program will allow for the stabilization of output at the designed plateau of 6 million tons on an annual basis. With regard to Yuri Korchagin, the second drilling stage involves development of the field’s eastern part.
The news on a production ramp-up resulting from Lukoil’s exploration activities off Astrakhan, a sea area estimated to contain some 4.7bnBOE, were followed by a statement from Kazakhstan’s Energy Minister Kanat Bozumbayev about the company’s interest in the acquisition of stakes in I-P-2 and Zhenis blocks, with the latter’s recoverable oil reserves estimated at 179 million tons, on the southern Kazakh shelf of the Caspian Sea. Back in 2012, the French energy major Total had officially refused to participate in those two projects amid a wave of several Western investors’ imminent withdrawals from Kazakhstan, including the likes of Eni and ConocoPhilips, due to excessive government regulation of the oil sector, a lack of long-term guarantees and multiple delays in the launch of new ventures. It was in that same year that KazMunaiGas inked a memorandum of understanding with Lukoil on the technical and economic parameters of I-P-2 and Zhenis. Given that the commercial evaluation of both projects at the time proved to be cost-ineffective, the two sides started working towards the preparation of proposals for amendments to Kazakhstan’s tax legislation. In February 2018, Lukoil CEO Vagit Alekperov reiterated his firm’s commitment to the geological exploration of the two sea blocks, pointing to the New Subsoil Code, signed by President Nazarbayev in late 2017, that is believed to be setting the conditions for better rates of return on complex oilfield investments, as it blurs the tax boundaries between exploration and production contracts. In line with the simplified Code, contractors maintain the right to either sell information stemming from a geological study to other interested parties or use it for their own investment purposes, while, during the subsoil exploration stage, their obligations to socially invest at the regional level are going to be decreased.
Lukoil, and consequently Russia, is no stranger to Kazakhstan’s oil and gas business. Tsentralnoye field, discovered in 2008 and jointly held by KazMunaiGas and Lukoil (Lukoil: 25%, Gazprom Neft: 25%), as well as Khvalynskoye field, discovered in 2002 and 50% owned by Lukoil, are both located not very far from I-P-2 and Zhenis the multinational energy corporation eyes at the moment. Finally, Lukoil participates with a 13.5% stake in the development and exploitation project of Karachaganak oilfield. Aside from the Russian and the Kazakh sectors of the Caspian Sea, Lukoil’s wholly owned subsidiary, Lukoil-Engineering, has in October 2017 agreed with the National Iranian Oil Company to jointly carry out modelling and analysis of the petroleum systems of northwest areas of the Persian Gulf, the Abadan plateau and the South Caspian basin. This MoU marks the debut of the Russian-Iranian energy cooperation in the Caspian, despite the fact that the legal status of the Sea has yet to be settled. It should be reminded that Azerbaijan, Kazakhstan and Russia have all accepted the median line principle as for the division of the Caspian, whereas Iran claims the Caspian is a lake and demands that it be equally divided among the littoral states (which would increase its current share of the sea from 14% to 20%). Turkmenistan has a rather unconventional approach to delineating the median line, which enables the country to assert a claim to a large part of Azerbaijan’s Azeri-Chirag-Guneshli (ACG) oilfield cluster.
Russia’s initially shifting position over the preferred resolution of the Caspian legal status emanated from a dispute between private oil companies and the Foreign Ministry, that customarily opposed to their presence in the particular region. Lukoil’s inclusion in the AIOC consortium, formed following ratification of the 1994 ‘’Contract of the Century’’ by the Azerbaijani parliament, revived the discussion on the issue. Two years later, the Ministry decided to grant national sovereignty over the mineral resources within 45 miles of each littoral state’s coast, with the middle area left for joint development, thus surrendering to the will of the country’s oil majors. Nevertheless, its diverging views with the Russian Ministry of Natural Resources stood out in August 1997, as soon as the latter awarded a tender to Lukoil to develop a field in the northern Caspian, stretching beyond the 45-mile zone. Oil exploration by Lukoil led to a conflict between Russia and Kazakhstan in late 1997, with Astana saying that the field encroaches on Kazakh territorial waters. A 1998 deal between Presidents Yeltsin and Nazarbayev over division of the seabed in the northern Caspian, as well as an additional protocol on joint production arrangements for three disputed gas fields in the area (Kurmangazy, Tsentralnoye and Khvalynskoye), ensued from the subsequent bilateral negotiations. Up until the early 2000s, when it scored its first successes with the discovery of the Yuri Korchagin field (2002) and Vladimir Filanovsky (2005), thought to be the largest oil reserve found in Russia in the last 20-25 years, Lukoil was the only prestigious Russian producer operating in what was deemed as a low-profit geographical space.
The 15-million-tons milestone achieved in Yuri Korchagin and Vladimir Filanovsky fields signifies Russia’s keenness to accelerate drilling and production from hydrocarbon deposits in its own sector of the Caspian. Meanwhile, Lukoil’s engagement in upstream projects in the Kazakh and Iranian portions of the Caspian Basin indicate Moscow’s decisiveness in exerting a form of soft power in the area playing the card of energy diplomacy. Whether these developments portend more propitious steps towards determination of the Caspian Sea legal status later in 2018, as was the case after the Russian-Kazakh struggle of 1997, remains to be seen.
Available online at: http://www.caspianpolicy.org/energy/caspian-energy-insight-april-12-2018/#3
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