Arbitration Court Confirms Lukoil Overseas’ Right To Turgai Petroleum Shares

The Arbitration Institute of the Stockholm Chamber of Commerce on 27 October upheld the pre-emptive rights of Lukoil Overseas to purchase 50% of Turgai Petroleum, a joint venture between Lukoil and PetroKazakhstan involved in developing the Kumkol oilfield in west-central Kazakhstan. PetroKazakhstan was sold by its Canadian owners to China National Petroleum Corporation (CNPC) in October 2005 for $4.2bn (MEES, 31 October 2005), including the 50% stake in Turgai held by PetroKazakhstan. Lukoil maintained that according to the formation agreement between it and PetroKazakhstan, Lukoil had a pre-emptive right to purchase PetroKazakhstan’s shares in Turgai if they were put up for sale.

Lukoil Overseas said the arbitration panel had confirmed its pre-emptive rights in accordance with the shareholders’ agreement, which said in case of change of control over the asset by one of the shareholders, the other had the right to acquire the shares. “However,” Lukoil said, “in violation of the shareholders’ agreement it was not proposed to Lukoil Overseas to bring into effect its pre-emptive right before the purchase of PetroKazakhstan Inc’s shares by CNPC” – one of the justifications for the arbitration. Lukoil said it intended to bring into effect its right for the purchase of 50% of Turgai in the nearest future. The company said in case CNPC and Lukoil Overseas were not able to negotiate the price, it would be defined by the independent expert, approved by both sides, or appointed by the arbitration court. Turgai has been working in Kumkol since 1995. Remaining proven reserves in the field are put at 177mn barrels and more than 3mn tons (60,000 b/d) were produced in the field during 2005.

Other recent developments in the Caspian region include:

  • China’s CITIC Resources Holding, part of China’s CITIC Group, has bid $1.91bn for the purchase of Karazhanbasmunai, which is owned by Canada’s Nation Energy and operates the onshore Karazhanbas oilfield in western Kazakhstan. Karazhanbas crude oil is low quality (19° API). Output averages around 50,000 b/d.  

  • Indian Oil Company Ltd (IOCL) on 2 November signed an agreement with Italy’s Eni and Turkey’s Calik Enerji covering the possibility of IOCL taking part in the proposed Samsun-Ceyhan crude oil pipeline. The 550km pipeline would carry up to 1.5mn b/d of Caspian region crude oil across eastern Turkey to Ceyhan. Total, Shell, and TNK-BP have expressed an interest in taking part in the project (MEES, 25 September).  

  • Independent Russian oil and gas company RussNeft on 3 November signed a 25-year rehabilitation, development and production-sharing agreement with Azerbaijan’s state oil company Socar for the onshore Zykh and Govsany oilfields. RussNeft holds 75% of the PSA and Socar 25%. The two aging oilfields cover a 65 sq km area on the southern Apsheron peninsula and are estimated to contain up to 90mn barrels of recoverable reserves. Combined production is about 2,000 b/d of crude oil and 3.9mn cfd of gas. Russia’s Lukoil withdrew from a similar PSA for the block last year on economic grounds (MEES, 28 February 2005).  

  • Azerbaijan’s state-owned oil and gas company Socar said on 26 October it was preparing to start exploration drilling in the offshore Babek-Umid Block. Work is to begin in February 2007, when a memorandum of understanding with ConocoPhillips regarding the block expires. Socar said it also planned to begin operations in the offshore Nakhichevan Block at some point in the future. ExxonMobil pulled out of the Nakhichevan and Zafar Mashal Blocks earlier this year following disappointing drilling results (MEES, 30 January).  

  • Turkmenistan’s President Saparmurat Niyazov on 6 November announced the discovery of a giant gasfield at South Yolotan. He said reserves were estimated at 7 bcm. The discovery is located in the southwest of the country near the Dauletabad gasfield.  

  • Dragon Oil on 7 November announced it had signed a two-year contract with Continental Industrial Supply (CIS) for the CIS-1 drilling rig. The rig, which is working onshore Turkmenistan, will be moved to the offshore LAM 22 platform and commence drilling during the first half of 2007. Plans call for the rig to drill up to four development wells in the LAM field, located in the offshore Cheleken Contract Area.  

  • Iran’s Mehr News Agency (MNA) on 5 November reported that oil swaps with Caspian countries had increased to 150,000 b/d. It quoted the director of international affairs at the National Iranian Oil Company (NIOC), Hojjatollah Ghanimifard as saying Iran plans to increase oil swaps to 200,000 b/d.