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Lukoil gets financing for 2nd stage of Shah Deniz project

7 August 2015 10:46 (UTC+04:00)
Lukoil gets financing for 2nd stage of Shah Deniz project

By Aynur Karimova

Lukoil Overseas Shah Deniz Ltd, a fully-owned Lukoil Private Joint Stock Company's subsidiary, has signed a 12-year credit-facility agreement with a consortium of banks to borrow $1 billion.

The ceremony of signing of the agreement was held in Baku on August 7.

The loan was allocated for ensuring the company’s share of participation in the implementation of the second stage of development of the Shah Deniz gas and condensate field in the Azerbaijani sector of the Caspian Sea.

Some $560 million of that amount will be provided for 12 years jointly by the European Bank for Reconstruction and Development, the Asian Development Bank and the Black Sea Trade and Development Bank. The remaining amount, $440 million, will be provided for a period of 10 years by a commercial banking syndicate comprising of the ING Bank N.V., the Bank of China, UniCredit AG and Societe Generale via B Loan programs of the EBRD and ADB.

Addressing the event, Michael Barrow, Deputy Director General of ADB’s Private Sector Operations Department, said ADB’s involvement has helped catalyse long-term bank financing support from commercial banks.

“This will be the largest gas field development project undertaken in Azerbaijan, generating more economic opportunities and helping to boost closer regional ties with Georgia and Europe,” he noted.

In his remarks, Riccardo Puliti, EBRD Managing Director for Energy and Natural Resources, said that this project is one of the EU’s highest priorities for the energy sector.

"It is a key for energy security because it diversifies routes and sources of gas supply,”he noted. “It helps cut carbon emissions by providing a bridge fuel for renewables and replacing coal. The project will also be a very big step towards the market-based hub pricing for gas which will bring Europe closer to a common gas market.”

Igor Leshukov, BSTDB Vice President for Banking, in turn, noted that supporting regional cooperation and energy efficiency in the Black Sea region are strategic priorities for BSTDB.

"We are happy to contribute to this project demonstrating strengthened synergies among development partners to foster sustainable growth in our member countries,” he added.

Shah Deniz is one of largest gas projects in world

After the signing ceremony Ogtay Movsumov, Head of the Project and Structured Finance Department at Lukoil, said that the signing of such a big agreement testifies that the banks support not only Lukoil, but the Shah Deniz project.

"Shah Deniz project is one of the largest gas projects not only in the region but also worldwide,” he said. “The allocation of such a large loan testifies that this project is supported by many people."

Movsumov thanked SOCAR for assistance in the project preparation, as well as the technical operator of Shah Deniz - BP for assistance in arranging financing, and said that allocating a loan testifies that the world's banks support an investment climate in Azerbaijan.

The Lukoil Company has a 10 percent interest in the Shah Deniz field. The total amount of additional funding of Lukoil within the framework of the equity participation in the Shah Deniz-2 project is $3 billion.

Lukoil Overseas Shah Deniz Ltd is a 100-percent daughter company of Lukoil Overseas, a holding company that manages Lukoil's participation in exploration and production projects outside Russia.

The Shah Deniz field, one of the world's largest gas-condensate fields, was discovered in 1999. Its reserves are estimated at 1.2 trillion cubic meters of gas. Overall, the field has proven to be a secure and reliable supplier of gas to Azerbaijan, Georgia, Turkey, and Europe.

The gas produced at the second stage of Azerbaijan's Shah Deniz field development will be the main source of the Southern Gas Corridor, which envisages the transportation of the Caspian gas to the European markets.

The second stage of Shah Deniz field development started in December 2013. The total amount of investments provided by the operating consortium (BP-28.83 percent, TPAO-19 percent, Petronas-15.5 percent; SOCAR-10 percent, Lukoil-10 percent, NICO-10 percent and SGC-6.67 percent) will be approximately $28 billion, excluding the construction of the export pipeline systems.

BP will build and operate the project facilities. Production from the project is expected to begin in 2018 and will help provide jobs for over 16,000 people through to 2022. The annual total Shah Deniz Stage 1 and Stage 2 production will peak at 25 billion cubic meters of natural gas.


Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova

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