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Lukoil, NIOC prep Caspian exploration deal

exploration of Iranian blocks seen costing $2 billion

Russia’s Lukoil is close to signing a four-year deal with Iran’s Khazar Exploration and Production Company to explore Iran’s untapped and costly south Caspian Sea reserves which are in need of foreign investment, KEPCO Managing Direc­tor Mohsen Delaviz told S&P Global Platts in an interview.

KEPCO is an upstream subsidiary of Iran’s state-run National Iranian Oil Company (NIOC), working in the South Caspian Sea area and the provinces of Mazandaran, Golestan and Gilan in Iran. It signed a memorandum of understanding on joint geological studies in the northwestern part of the Persian Gulf, as well as the Abadan plateau and the south Caspian basin with Lukoil last month.

“The cooperation is proceeding as if a confidentiality agreement is about to be signed,” Delaviz said in written comments Monday. “A total duration of four years had been considered for the joint study by Lukoil which would be clearly defined by updating the data and supplementary studies in the near future.”

The MoU in place includes geophysics, geology and geochemistry works inside a 20% range of the south Caspian Sea plus three Khazar coastal provinces and part of the Mugan plain, he said.

Once the contract is signed, the parties will determine the investment, so far estimated at $2 billion for all seven prioritized structures defined in the MoU, or $300 million in terms of exploration at each structure, Delaviz said.

Works in the challenging areas of northern Iran, particularly offshore, come with a delay and at higher costs compared with southern projects, he added.

“Considering economic and political components, it seems that oil price will grow in the coming years,” he said.

future projects with Russia

When asked whether Lukoil could enter other Iranian blocks in the future, Delaviz said the current areas already represent a big commitment, but did not rule out considering further proposals by the Russian major should any follow.

“There is a huge amount of work to do on the four proposed blocks in the south Caspian Sea, and it seems improbable that Lukoil would act contrary to the agreement although any proposal by Lukoil is negotiable,” he said.

Lukoil has experience in offshore field development in the Caspian Sea, where it has two producing fields of its own — Korchagina and Filanovsky — and plans to launch Rakushechnoye early in the next decade.

Iran, which has been aiming to attract

NNPC, Chevron ink funding deal to develop two oil blocks

Lagos—Nigerian National Petroleum Corp. late Sunday said it had signed an agreement with US oil major Chevron to execute the final phase of a $1.7 billion alternative financing arrangement to develop two offshore blocks that will add 39,000 b/d of condensates to Nigeria’s production.

The project, signed in London over the weekend, will produce natural gas liquids and condensate from the Sonam and Okan fields in OMLs 90 and 91 in the Niger Delta, as well as 288 Mmscf/d of natural gas, NNPC said in a statement.

A total of seven wells will be drilled in the two fields, while a 20-inch pipeline along 32 km will also be constructed to deliver the hydrocarbons.

“The project, which is about 92% complete, will cost about $1.7 billion, with $780 million expected to be funded by third parties,” NNPC said.

The first phase of the funding arrangement saw the partners secure $400 million from Nigerian banks in August.

NNPC holds 60% equity in the project and Chevron the remaining 40%.

Nigeria is aiming to increase oil production to 4 million b/d by 2020 from the current 2.08 million b/d, including condensates.

However, faced with funding challenges, the OPEC member opted for alternative funding through third-party financing options.

“Alternative financing approach is aimed at plugging NNPC’s shortfall in funding JV cash call obligations including settlement of pre-2016 cash call arrears,” the statement quoted NNPC group managing director Maikanti Baru as saying.

Nigeria owed the foreign companies, including Shell, ExxonMobil, Total and Eni, $6.8 billion as at September 2016, under the previous funding mechanism, known locally as cash call.

The NNPC statement also quoted the managing director of Chevron’s Nigerian producing unit, Jeff Ewing, as commending NNPC for backing the third-party financing arrangement, which he said would lessen the cash call burden on Nigeria.

Ewing said the natural gas from the fields would be made available for the domestic market for Nigeria’s power sector.

international expertise and investment to boost its crude production since the removal of US sanctions in early 2016, has signed MoUs with nearly 30 companies for studies on around 40 oil and gas fields, requiring billions of dollars in investment.

Lukoil is one of several Russian companies to have MoUs with NIOC or its subsidiaries, besides Rosneft, Gazprom, Gazprom Neft, Tatneft, Zarubezhneft, as well as state geological holding company Rosgeologia.

northern Iran development

Earlier this year, Iran established an investment committee to attract foreign funds into its Caspian projects, triggered by growing energy demand in northern Iran and “national interest considerations,” with the KEPCO investment committee meeting overseas companies on joint venture and service investments, Delaviz said.

“It is believed that consortia consisting of investors and oil companies would announce their readiness to collaborate in near future,” Delaviz said.

Oil and gas project development in northern Iran comes with a delay compared with better-developed southern areas “due to lack of exploration activities,” he said, noting, however, a certain amount of success in the Caspian, where KEPCO has recently found light oil “in an economic volume” at block 6.2.

Two exploration wells have been drilled in south Caspian Sea deep water areas between 2011 and 2014, which resulted in the discovery of oil reserves in the first well, he said.

While previous exploration studies “promise high potential hydrocarbon reserves in the south Caspian Sea,” they need to be updated with the help of foreign partners, he said.

Earlier this month, Iran signed an MoU with Norway’s ORG to carry out geological studies on the Sardar-e-Jangal (or Sardar Jangal) field and three exploration blocks — 24, 26 and 29

— in the basin.

KEPCO expects to build the second subsea distribution unit and drill at least two exploration wells a year at the site.

Delaviz, who mentioned Lukoil among potential foreign partners in developing Sardar­e-Jangal, said it is “hopefully an oil field not a gas field,” holding over 2 billion barrels of initial oil in place, some 500 million barrels of which is recoverable, with a recovery factor of 25%.

 


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