Lukoil amends Shah Deniz agreement for smaller share

PJSC LUKOIL amended its share acquisition agreement for the bp-operated Shah Deniz project in the Azerbaijan sector of the Caspian Sea following negotiations with project partners on implementation of preemptive rights.

SOCAR acquired 4.35% from Petronas in accordance with the terms of the preemptive agreement. LUKOIL and bp acquired the other part of Petronas’s 15.5% share. 

In October, LUKOIL agreed to pay $2.25 billion for a 15.5% interest in the project from Petronas (OGJ Online, Oct. 7, 2021). In accordance with the new arrangements, LUKOIL will acquire 9.99% for $1.45 billion.

The deal is expected to close in January 2022.

Shah Deniz

Shah Deniz gas-condensate field, bp’s largest gas discovery, was found in 1999 and is estimated to hold 1 trillion cu m of gas. It covers 860 sq km and lies in water depths up to 500 m. The first phase of field development, Shah Deniz 1, began production in 2006, delivering more than 10 billion cu m/year (bcmy) (OGJ Online, Dec. 8, 2006).

In 2020, Shah Deniz consortium extracted 18.1 bcm of gas and 3.6 million tonnes of gas condensate. In the first 9 months of the year, the field produced around 16 bcm of gas and around 3 million tonnes of condensate in total from the Shah Deniz Alpha and Shah Deniz Bravo platforms.

The existing Shah Deniz facilities’ production capacity is currently about 70 million standard cu m/d of gas.

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. In third-quarter 2021, the Shah Deniz 2 project reached full production rates from the East South flank following start-up in second-quarter 2021. 

On the West South flank, the pipelay barge Israfil Huseynov completed the subsea pipeline construction activities in the third quarter. The scope was delivered ahead of schedule, allowing subsea pipelaying activities to begin on the East North flank this year instead of second-quarter 2022. Production start-up is expected mid-2022.

In the third quarter, the project also continued preparation activities for the production start-up from the final fifth well on the North Flank planned for fourth-quarter 2021.

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.

Prior to the preemptive agreement, LUKOIL's share in the project was 10%.