Lukoil is close to signing a contract with KazMunayGas for development of the little-studied Zhenis block on the Kazakh shelf of the Caspian Sea. The company is ready to invest $350 million in geological exploration of the block, and in case of opening a field, according to Lukoil’s head Vagit Alekperov, the company will receive compensation for the extracted raw
materials. According to analysts, the production can be profitable even in case of a small discovery, provided the tax burden is low.

Lukoil will invest $350 million in the geological exploration of the Zhenis block in the Kazakh part of the Caspian Sea’s shelf, the head of the Russian oil company Vagit Alekperov said after talks with the local state-owned company KazMunayGas. The shares in the joint venture will be distributed equally between Lukoil and KazMunayGas, the parties hope to sign the contract within a month. To enter the project, Lukoil will pay a "subscription bonus" in the amount of $5 million. According to Mr. Alekperov, the exploration stage will take seven to nine years, and in the case of the discovery of the field, the costs incurred will be taken into account "in the division of profitable oil." Lukoil hasn’t answered questions of the Kommersant.

Zhenis (sea depth is 75-100 meters) is located in the southern part of the Kazakhstan’s shelf. Not far from this area there are other joint ventures of Lukoil and KazMunayGas - Tsentralnoye (Lukoil and Gazpromneft have 25% each) and Khvalynskoye fields (share of the Russian company is 50%). The distance from the site to the shore is 80 km, to the port of Aktau - 180 km. The area of the site is 6.8 thousand square km. According to assessment of Gaffney, Cline & Associates, made without taking into account the reserves of the North-Caspian project (Kashagan, Aktoty, Kairan and Kalamkas-sea), the resources of the Kazakh shelf are 2.3 billion tons of oil.

Initially, Lukoil estimated the investments in the geological exploration at $270 million, of which the seismic survey and well drilling were to cost $60 million at the first stage. Now, at the first stage, Lukoil is going to allocate $50 million, and then another $300 million. Lukoil owns shares in three existing oil projects in Kazakhstan: Tengiz (share is 5%), Karachaganak (13.5%) and Kumkol (50%) and discusses entering the I-P-2 block. The share of Lukoil in Kazakhstan in the oil production makes ups about 3 million tons.

According to Andrei Gromadin of Sberbank Investment Research, it will be possible to judge the prospects of this project only after the first stage of the geological exploration period, which may take two or three years. The profitable development of the Zhenis project is possible even in the case of opening a small field, if the company receives favorable conditions for the division of products that have not yet been disclosed, the analysts notes. In recent years, Lukoil was active exclusively in the Russian part of the Caspian Sea, where significant benefits from the Russian Government were received, the analyst notes, primarily development at the fields n.a. Korchagin and Filanovsky. The development of the offshore fields really require billions of dollars in the investments, Mr. Gromadin noted, and Lukoil itself has already invested more than $10 billion in the Caspian projects since 2006.

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