Lukoil Operations in Azerbaijan

=Overview=

Lukoil joined the AIOC international consortium for development of hydrocarbon fields in Azerbaijan in the early 1990s.

=Activities=

ACG
In Autumn 2012 Lukoil decided to sell its share in the AIOC consortium, which operates the Azeri-Chirag-Guneshli (ACG) fields. The share was sold to Japan's Inpex.

Several possible explanations were raised by the media for Lukoil's pullout from ACG. Some suggested that it was due to the finalisation of the Baku-Tbilisi-Ceyhan (BTC) pipeline deal, a gas export route bypassing Russia. A second suggested reason was the potential for political instability in Azerbaijan and along the BTC route. Other suggestions centred around the impact on the price of Lukoil shares, whereby changes in price could be exploited by the Russian government (deemed 'implausible' by Douglas Blum of Providence College). Blum concluded that the withdrawal was likely due to economics and the lack of profitability of the investment.

Shah Deniz
Lukoil holds a 10% stake in the Shah Deniz gas field, since the Production Sharing Agreement (PSA) was ratified in 1996.

Other projects
On 3 July 1997, Lukoil signed an Exploration and Product Sharing Agreement to develop the offshore Yalama field, which the State Oil Company of Azerbaijan (SOCAR) estimated to contain 365 million barrels of oil. The field is in waters shared by Azerbaijan and the Russian republic of Dagestan. Lukoil has an 80 percent stake and SOCAR has the remainder. Lukoil in November 2004 halted its first exploration well at the field because of water problems.

Lukoil was also involved in the project to rehabilitate the Zykh and Govsany onshore fields, both of which had been under development for 70 years. However subsidiary Lukoil Overseas Holding Ltd withdrew from the project in February 2005, citing poor economic performance and considerable expenses for environmental reinstatement of the contractual area.

=References=