LUKoil reviews progress in Caspian region

by Charles Coe

The board of directors of LUKoil held a meeting in Baku on March 27 to review the company's activities in the Caspian region. A statement released by LUKoil said the directors had reviewed developments in the company's oil and gas projects in the region and examined prospects for oil refining and product distribution in international markets.
In late 1995, LUKoil started a comprehensive study of mineral resources in the Russian sector of the Caspian Sea. Since then, it has engaged in geological surveys and development of the sea's northern area, the statement said. Prospecting infrastructure has been established in Astrakhan, where the Astra jack-up rig was upgraded at the shipyard.
The value of the geological surveys and infrastructure preparation carried out has exceeded $ 300 mm, according to the statement. The company said that the survey resulted in the discovery of 10 promising oil and gas structures, as well as two oil and gas fields, Khvalynskoye and Yuri Korchagin. It added that development plans for five of these structures called for deep-water drilling. The estimated reserves of these fields stand at 460 mm tons of oil equivalent.
The statement also said that LUKoil would soon begin drilling four deep-water wells and "perform a significant volume" of geophysical works at the Yalama-Samur and Tsentralnaya geological structures in the Caspian. In reference to the Caspian Oil Company (KNK) -- a joint venture between LUKoil, Gazprom and Yukos -- LUKoil said it would continue geological work in the northern Caspian, where KNK last year announced an oil discovery in the Severny block.

LUKoil is adhering to strict environmental standards by following the zero-discharge principle, the statement said. This method requires all waste products to be evacuated to the shore and processed using special technology.
The company further said it had created LUKoil Europe Holdings in order to boost the efficiency of its marketing and distribution operations in international markets. The holding company will "ensure integrity of investment, budgeting and administration activities of the company's overseas subsidiaries and their openness and transparency to shareholders in accordance with international requirements and standards," the statement said.
LUKoil plans to implement a development program during 2001-2005 for its overseas oil-processing plants, which include the Petrotel refinery in Romania, the Neftokhim refinery in Bulgaria and the Odessa refinery in Ukraine. The plan calls for maintaining production of quality petroleum products and ensuring the efficient use of secondary processes though inter-refinery cooperation, the statement said.
By the end of 2001, it added, LUKoil plans to expand a distribution chain of its own and an affiliated chain by 120-150 retail outlets in Romania, Bulgaria and Ukraine. The purpose of this program is to generate profits through export operations, LUKoil said.

LUKoil also intends to expand its network of service stations in Azerbaijan. The company's President Vagit Alekperov said that the company would invest $ 50 mm in Azerbaijan in 2001. LUKoil has invested around $ 500 mm in the country over the last eight years.
Earlier this year, during a visit to Baku by Russian President Vladimir Putin, LUKoil and the State Oil Company of Azerbaijan (SOCAR) signed an agreement covering the rehabilitation, exploration and development of the onshore Zykh and Hovsanny fields. The accord calls for LUKoil and SOCAR to set up a 50-50 joint venture to develop the fields on a production-sharing basis.
The Zykh oilfield was discovered in 1935 and brought into operation in 1936, while Hovsanny was discovered and brought on stream in 1948. There are 15 operating oil wells in the fields at present and together they produce around 1,800 bpd.
LUKoil said that the fields' estimated reserves exceed 175 mm barrels and that reserve figures could be enlarged through the use of modern technology. Work at the concession is set to beginwith the rehabilitation of existing wells, the upgrading of oilfield infrastructure and the implementation of environmental safety measures. Once two appraisal wells are drilled, further steps will be taken for rehabilitation and development. The initial cost of rehabilitation work has been budgeted at $ 200 mm.

LUKoil is also a partner in the Azerbaijan International Operating Company (AIOC) with a 10 % stake. It also holds a 5 % stake in the BP-led effort to develop the Shah-Deniz gas field and a 60 % stake in the D-222 (Yalama) concession.