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EBRD lends Lukoil Overseas $180 million
Bank helps Russian firm fund construction of Caspian gas projects
The European Bank for Reconstruction and Development is lending $180 million
to two subsidiaries of Lukoil Overseas, the operator for international
projects of Lukoil, one of Russia’s largest private oil and gas companies. The
money will help Lukoil Overseas manage its 10 per cent stake in the Shah
Deniz/South Caucasus Pipeline projects extracting gas from under the Caspian
Sea off Azerbaijan and building a pipeline to transport it to the West.
Azerbaijan has proven natural gas reserves of 30 trillion cubic feet and the
potential for even more. When completed, the pipeline system will have an
annual capacity of about 20 billion cubic metres of gas a year, while
production from the Shah Deniz field should reach 8.4 billion cubic metres a
year. International investors in the consortium developing the giant offshore
gas-condensate field include BP of the UK, Norway’s Statoil, France’s Total
and Azerbaijan’s SOCAR (the State Oil Company of Azerbaijan).
Lukoil Overseas increased its investment in the projects to 10 per cent at the
end of 2004. The EBRD’s loan goes to two subsidiaries, Lukoil Overseas Shah
Deniz Ltd and Lukoil Overseas Shah Deniz Midstream Ltd, which hold the Lukoil
stake. These companies will borrow $110 million and $70 million respectively,
part of which will be syndicated to the commercial market. The money will fund
Lukoil’s share of the cash calls for the development of the Shah Deniz gas
field, and the South Caucasus Pipeline for gas exports to Georgia and Turkey.
Shah Deniz field’s condensate will also be exported to the world market, via
the Baku-Tbilisi-Ceyhan pipeline.
Supporting these gas projects is consistent with the Bank’s strategy of
supporting increased transparency in the natural resources sector and, in
particular, of the Extractive Industries Transparency Initiative (EITI). This
promotes transparency in oil and mining by asking governments and extractive
industries companies to publish both what they pay and what they receive for
minerals, and is endorsed by the government of Azerbaijan. As part of this
transaction, Lukoil Overseas will comply with EITI disclosure requirements not
only for the Shah Deniz field but also in its other upstream oil and gas
holdings in Azerbaijan. The transaction also supports competition in the gas
sector in Russia and its regional neighbours, and thus fits with the Lukoil
group strategy of increasing natural gas production six-fold in the next 10
years. Lukoil’s international operations currently make up 10 per cent of
total group activity; but the group also intends to raise that to 20 per cent
within a decade. Kevin Bortz, the Bank’s Director, Natural Resources, said the
EBRD welcomed Lukoil Overseas’ intention to provide high-quality management
and financial transparency. LUKOIL Overseas President Andrey Kuzyaev said:
“Expanding cooperation with the EBRD is strategically important to us and
emphasizes our production activities in big international projects”.
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