Azerbaijan: Lukoil to Buy Petronas' Shah Deniz Field Stake for $2.25B

Russian oil and gas company Lukoil has agreed to acquire a 15.5% stake in the Shah Deniz offshore gas field in the Azerbaijan sector of the Caspian Sea from Malaysia's Petronas.

Lukoil said the value of the transaction was $2.25 billion, with the completion is subject to certain conditions precedent, including approval by SOCAR, Azerbaijan's national oil company. Petronas bought its 15,5 percent stake from Statoil (now Equinor) in 2014.

After the completion of the transaction announced Thursday, Lukoil's stake in the Shah Deniz project will increase from 10% to 25.5%. The other parties to the project are BP(operator, 28.8%), TPAO (19%), Socar (10%), NICO (10%), and SGC (6.7%).

The Shah Deniz field is located 70 kilometers southeast of Baku. Commercial production there began in 2006. In 2020, the Shah Deniz consortium extracted 18.1 bcm of gas and 3.6 million tonnes of gas condensate.

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. The gas is sold on the markets of Azerbaijan, Georgia, and Turkey. Since December 2020, gas from Shah Deniz is also delivered to Europe via a pipeline system.

This is Lukoil's second Azeri Caspian Sea deal in a little over a week, as the company in the last days of September announced it had agreed to acquire a stake in a BP-operated Shallow Water Absheron Peninsula (SWAP) exploration project.

Lukoil will take a 25% stake from BP, which will retain a 25% stake and remain the operator of the SWAP exploration project. SOCAR holds a 50% stake.

The deal is expected to complete before the end of 2021, following its approval by the government of Azerbaijan.

The SWAP project area is located in the shallow waters south of the Absheron Peninsula in the Azerbaijan sector of the Caspian Sea. The SWAP production sharing agreement was signed between BP and SOCAR in December 2014.

The SWAP contract area stretches along the margins of the Caspian basin to the south of the Absheron peninsula. The acreage features water depths of up to 40 meters with potential reservoir depths of 2,000-5,000 meters.