Lukoil gets $1bn loan to help finance $28bn gas project

Aug 07, 2015 12:00 AM

Russian oil giant OAO Lukoil on Friday said it has inked a loan deal with a consortium of development and commerical banks worth $1 billion to help fund its share of a $28 billion natural gas development project in the Caspian Sea that will eventually export billions of cubic feet of gas to Europe.

The European Bank for Reconstruction and Development, Asian Development Bank and Black Sea Trade and Development Bank are loaning Lukoil $560 million over a 12-year period, and a commercial bank group of ING Bank NV, the Bank of China, UniCredit AG and Societe Generale are loaning $440 million over a 10-year period, Lukoil said.

The loan will help fund Lukoil's 10 percent stake in the $28 billion second phase of a project by a BP PLC-led consortium to tap the Shah Deniz field and transport approximately 565 billion cubic feet of natural gas per year nearly 2,200 miles to millions of customers in Georgia, Turkey, Greece, Bulgaria and Italy as early as 2018.

The Shah Deniz field, located in the Caspian Sea off the coast of Azerbaijan, is estimated to hold as much as 42 trillion cubic feet of gas.

The final investment decision on phase two of the Shah Deniz project was made in December 2013. It includes offshore drilling and the completion of 26 subsea wells and construction of two bridge-linked platforms, as well as the construction of new onshore processing and compression facilities at Azerbaijan’s Sangachal Terminal.

The investment decision also put into effect gas supply deals that the consortium reportedly inked with a host of European buyers to provide up to 350 billion cubic feet of natural gas from the Shah Deniz field annually for 25 years. Those deals came on the heels of a supply agreement with Turkey’s Botas Petroleum Pipeline Corp. for roughly 210 billion cubic feet of natural gas per year.

BP is the operator and largest stakeholder in the Shah Deniz project with a 28.8 percent stake, with Turkish state oil company TPAO holding a 19 percent stake, Azerbaijan state-owned energy company SOCAR a 16.7 percent stake, Malaysian state-owned oil company Petronas a 15.5 percent stake and OAO Lukoil and Naftiran Intertrade Co. each holding 10 percent stakes.

The Shah Deniz project has also spawned multibillion-dollar pipeline projects to ship the gas produced to Europe. Earlier this year, BP grabbed a 12 percent stake in the 1,200-mile Trans-Anatolian Pipeline, which will carry gas extracted from the Shah Deniz field to a hub in western Turkey, where it can be distributed internally or sent to Europe. SOCAR owns a 58 percent stake in the project, and Botas owns a 30 percent stake.

The pipeline would connect with the Trans-Adriatic Pipeline being built across Greece, Albania and into Italy, as well as an expansion of the South Caucasus Pipeline through Azerbaijan and Georgia.

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