Page 4 - FSUOGM Week 40 2021

FSUOGM COMMENTARY FSUOGM

Lukoil expands Caspian footprint

The Russian firm has struggled in recent years to stem production decline

CASPIAN RUSSIAN oil and gas producer Lukoil plans largest gas fields. But those two projects have
to expand its operations in the Caspian Sea, now reached their peak capacity and will begin
WHAT: a region which the company is counting on to to see decline in several years.
Lukoil is looking at drive growth over the coming years. As such, the company has chosen to double
new upstream projects Lukoil is Russia’s second-biggest crude pro- down on the Caspian Sea as a source of future
offshore Azerbaijan and ducer by output, but has struggled in recent years growth.
Kazakhstan. to stem production declines. Efforts to address
declines at its older Western Siberian fields have Azerbaijan
WHY: not lived up to expectations, and OPEC+ restric- Lukoil is already a seasoned operator in the Cas-
The Russian company tions since 2017 have prevented it from launch- pian. After years of exploration, it launched the
wants to expand its ing certain new projects. Making matters worse, Korchagin oilfield in the Russian section of the
already considerable the company was recently stripped of lucrative Caspian in 2010, followed by the nearby Filano-
presence in the Caspian tax breaks at its oil sands fields and other com- vsky field six years later. It is also a shareholder in
Sea. plex projects in Russia. the BP-led Shah Deniz gas project off Azerbaijan,
While Lukoil’s larger rival, state-run Rosneft, and has exploration rights to a number of pros-
WHAT NEXT: has had similar difficulties with arresting pro- pects off Kazakhstan.
A deal in Azerbaijan duction decline, Lukoil has not been afforded the Lukoil is set to expand its footprint offshore
will likely depend on same opportunities to develop large new fields Azerbaijan further, after striking a deal in late
drilling results, while in the Arctic as Rosneft. Lukoil has also been September to acquire a 25% interest in the Shal-
in Kazakhstan, the unsuccessful in convincing the Russian govern- low Water Absheron Peninsula (SWAP) project
company may have ment to let it develop offshore fields in the Arctic, off Azerbaijan from BP. The latter will remain
secured attractive terms despite years of lobbying efforts. operator of SWAP with a 25% position, while
by leveraging the close Lukoil has sought to expand overseas, but Azerbaijan’s SOCAR will retain its 50% interest.
energy relationship progress at establishing a major international The deal is anticipated to be closed before the
between Astana and upstream footprint has been slow. Some of end of the year, pending approval from the Azeri
Moscow. its greatest international success has been in government, Lukoil said.
Uzbekistan, where it operates the country’s two “We are pleased to welcome Lukoil to the

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