Lukoil, KMG Sign Deal on Caspian Project
Russia's Lukoil and Kazakhstan's KazMunayGas (KMG) have agreed on their rights and obligations at a joint project to develop the Al-Farabi oil and gas block in the Kazakh section of the Caspian Sea, the companies said on October 8.
The block, formerly known as IP-2, spans more than 6,000 km2 some 100-130 km from the coast in waters 150-500 metres deep. Lukoil and KMG signed an agreement in principle on joint work at the site in June last year. Once KMG obtains subsoil rights to the area, it aims form a 50.01-49.99% joint venture with Lukoil and they will sign an exploration and production contract.
Kazakhstan has been trying to develop its offshore oil and gas for decades with international assistance. But so far only one project, Kashagan, has entered production, and only after years of delays and significant cost overruns owing to the very high acid content.
The government reformed its tax policy in 2018 in an effort to attract more foreign investors, and Lukoil CEO Vagit Alekperov has cited these improvements as a reason for the company's interest in IP-2 and another block Zhenis. Lukoil and KMG signed an exploration and production to develop Zhenis in April last year.
The companies are also partners at the onshore Karachaganak, Tengiz and Kumkol projects in Kazakhstan, as well as at the Caspian Pipeline Consortium that ships Kazakh crude westwards to markets. The pair are also working at the Khvalynskoye and Tsentralnoye fields straddling the border between Russian and Kazakh waters in the Caspian, but these projects are in limbo because of their long distance from shore and an unresolved dispute over the sea's legal status.