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    Lukoil Eyes Offshore Azerbaijan: Update

Summary

It would not be the first time Azerbaijan has managed to bring on board a foreign partner at projects previously written off as uncommercial. (Lukoil's CEO is shown centre left above, and the president of Azerbaijan centre right. Credit: Azerbaijan government.)

by: Joseph Murphy

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Lukoil Eyes Offshore Azerbaijan: Update

(Adds SOCAR announcement of memorandum with Lukoil)

Lukoil CEO Vagit Alekperov and the president of Azerbaijan Ilham Aliyev met January 21 and discussed the joint development of the Goshadash and Nakhchivan blocks in the Caspian Sea, according to a statement by the latter's press office. The two “adopted a decision on the issue.” They met at the World Economic Forum at Davos, Switzerland.

Azerbaijan's state-owned SOCAR later added it had signed a memorandum of understanding with Lukoil covering joint activities at the Nakhchivan block.

Azerbaijan has been seeking investment partners for the two blocks, first identified as hydrocarbon prospects by Soviet engineers, for some time. Lukoil is already producing oil from the Russian sector of the Caspian.

ExxonMobil signed a production-sharing contract with Azerbaijan’s state-owned Socar in 1997 to explore Nakhchivan, 90 km south of Baku, but dropped out after drilling a dry well. Germany’s RWE Dea then entered talks to take part in the project in 2010, but withdrew without finalising a development contract.

Azeri authorities have nevertheless claimed the area could contain up to 300bn m3 of gas and 40mn mt of condensate.

Malaysia’s Petronas signed a memorandum to team up with Socar in late 2016 at Goshadash, 15 km offshore. But again, a binding deal was never reached.

Russia expressed its interest in the project in September 2018, reaching an agreement with Azerbaijan on its joint development. A month later Russia’s Rosneft signed a deal with Socar on joint studies at the site.

A partnership with Lukoil would not be the first time Azerbaijan has managed to bring on board a foreign investor at projects previously written off as uncommercial. In 2018, Norway’s Equinor signed contracts to explore and develop the offshore Karabagh oilfield and the Ashrafi-Dan Ulduzu-Aypara block, both of which were explored and then abandoned by international consortia in the late 1990s.

Lukoil is a major operator in the Caspian Sea, with a monopoly over oil and gas production in its Russian zone and several exploration projects in the waters off Kazakhstan.