Lukoil closes $435 million deal for block in shallow waters off Mexico

Lukoil closes $435 million deal to enter shallow water blocks off Mexico

Russia’s Lukoil has completed the acquisition of a 50 per cent operated interest in the Area 4 project – located in shallow waters offshore Mexico – through a deal with the operator’s holding company for $435 million.


Back in July 2021, Lukoil entered into an agreement to acquire the 50 per cent operator interest in the Area 4 project, as it saw the region as a strategic one for its further growth and development of international upstream operations, which compliments its Gulf of Mexico portfolio.

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In its latest update on Friday, Lukoil announced the completion of the transaction, confirming that the Mexican authorities approved the deal on 3 February 2022. As previously reported, the transaction value amounted to $435 million, plus expenditures – about $250 million – incurred since 1 January 2021 as of the transaction completion date.

Located 42 kilometres offshore in the Gulf of Mexico, the two blocks included in this project cover 58 square kilometres in total with a sea depth at the blocks of 30-45 metres. The two blocks include two oil fields – Ichalkil and Pokoch – and the recoverable hydrocarbon reserves of these fields amount to 564 million barrels of oil equivalent, more than 80 per cent of which is crude oil.

The production at the fields started in the fourth quarter of 2021 and the current average daily oil production exceeds 25 thousand barrels. Developed in three phases, the project has a peak daily production rate estimated at more than 115 thousand barrels of oil equivalent.

The project was implemented under a production sharing agreement signed in 2016 for a period of 25 years with the right for an extension for up to 10 years. The oil and gas subsidiary of Mexican conglomerate GrupoBAL, PetroBal, is Lukoil’s partner in the project with the remaining 50 per cent interest.

While the Russian giant has now closed this deal, this seems to be a challenging time for most Russian companies, as they have been subjected to heavy sanctions, following Russia’s attack on Ukraine. This led to an increase in oil prices with Brent surging over the $100 a barrel mark for the first time in eight years, as fears about a disruption in energy supplies surged forward due to a war looming over Europe.

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When it comes to other activities in Mexico, it is worth noting that Lukoil made an oil discovery in November 2021 within the Yoti West structure at Block 12, located off Mexico.

To remind, Lukoil entered into a farm-out agreement with Eni back in November 2018 to assign 40 per cent in Block 12 to Eni, while retaining the remaining 60 per cent stake, allowing it to remain as the operator of the project. In light of this, Eni assigned 20 per cent in blocks 10 and 14 to Lukoil while keeping the operatorship of both projects.

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Elsewhere in Mexico, Eni started the first production on Thursday at the field it operates within the Development Project in Area 1 in the Gulf of Mexico, using the FPSO Miamte.