Lukoil paying $2.25 billion for Shah Deniz stake

Russian oil and gas giant Lukoil has concluded an agreement on acquiring 15.5 per cent interest in the Shah Deniz natural gas project in the Azerbaijan sector of the Caspian Sea from Petronas.

Lukoil said on Thursday that the value of the transaction would amount to $2.25 billion. The completion is subject to fulfilment of conditions precedent, including approval by SOCAR, the State Oil Company of the Azerbaijan Republic.

Following completion of the sale, Lukoil’s interest in the project will increase from 10 per cent to 25.5 per cent. The other parties to the project are BP (operator, 28.8 per cent), TPAO (19 per cent), SOCAR (10 per cent), NICO (10 per cent), and SGC (6.7 per cent).

Vagit Alekperov, President of Lukoil, stated: “Increasing our share in the Shah Deniz project creates new opportunities for synergy in future-oriented economy sectors of our countries. Over 25 years, Lukoil accumulated enormous experience in the Caspian region, which we perceive as strategically important, as well as created extensive production and transport infrastructure.”

The BP-operated Shah Deniz gas condensate field is located in the Azerbaijan sector of the Caspian Sea, 70 kilometres southeast of Baku. The project is implemented under a PSA and the commercial production there began in 2006. In 2020, Shah Deniz consortium extracted 18.1 bcm of gas and 3.6 million tonnes of gas condensate.

In 2018, the second stage of the project was launched, with annual production expected to reach 26 bcm of gas and 5 million tonnes of gas condensate. The gas is sold on the markets of Azerbaijan, Georgia, and Turkey. Since December 2020, it is also delivered to Europe via a pipeline system.

In the second quarter of 2021, Shah Deniz celebrated its 25th anniversary since the signing of the PSA. The existing Shah Deniz facilities’ production capacity is currently over 58 million standard cubic metres of gas per day or more than 21 bcma.

In July 2021, Shah Deniz consortium started production from the East South flank at 540m water depth – the biggest milestone planned for the project this year.

The new East South production flank consists of four wells, two new flowlines, and a number of subsea structures connected to the world-class Shah Deniz reservoir. It is expected that the flank will be at full production rates in the third quarter of 2021.