No. 4, 2011

Pavel Bogomolov


LUKOIL sets its sights on Africas deepwater shelf

LUKOIL Overseas is pinning its hopes on ventures being pursued on Africa's deepwater shelf with the aim of diversifying business and strengthening and developing the Company's position in this extremely rich oil and gas region of the world. In 2006-2007, LUKOIL Overseas acquired a stake in four offshore projects on the shelf of Ghana and Cote d'Ivoire. All of the sites are in the deepwater part of the Gulf of Guinea and belong to the Tano Basin where several large hydrocarbon fields have been discovered. In 2011, the Company made a new acquisition in Africa by joining a project to explore and develop a deepwater offshore block in Sierra Leone. The block is situated in the Sierra Leone-Liberia Basin where several large oil fields confirming the Basin's prospects have been discovered in the past two years.

Cote d'Ivoire: a new drilling site

Whereas during the first half of 2011 LUKOIL's Western African subsidiaries were largely engaged in implementing upstream programs in Ghana after the Olympia, a 6th generation drilling vessel, arrived at the shelf structure and started drilling, by the end of the year, attention had switched to the water area of a neighboring state, Cote d'Ivoire. LUKOIL had ordered for the Maersk Deliverer semi-submersible drilling rig to be moved to these waters.

In other words, a Danish element has been added to the South Korean (Olympia) technological component. This event also had international repercussions. The platform just happened to be released to LUKOIL underway and in the offing on the same day Queen Margrethe II of Denmark completed her visit to Russia in the company of Prince Consort Heinrich and Crown Prince Frederik. So it can be said that the agreements and other documents signed in the Kremlin in the presence of the heads of state, representatives of Russian business circles, and more than a hundred businessmen from Denmark were graphically illustrated by the arrival of the first team of LUKOIL specialists on board the Maersk Deliverer.  This happened close to the Liberian coast literally the day before the platform entered the waters of Cote D'Ivoire.

However, the shift in attention by industry reporters and experts watching LUKOIL plans implementation in the Gulf of Guinea from Ghanaian territorial waters to Cote d'Ivoire in no way means that work close to the former so-called Gold Coast has stopped in its tracks. Not at all: after completing drilling at the underwater Dzata structure, in September 2011, the same Olympia quickly raised anchor and moved closer to the coast of Ghana in the direction of the shallower, but nevertheless promising, Cheetah structure.

Whereas the word "dzata" translated from the Ghanaian dialect Fante means "lion", "cheetah" symbolizes another member of the African savannah cat family. As for the underwater Cheetah structure, it, like Dzata, belongs to a precisely delineated water area at one and the same shelf block, Cape Three Points Deep Water (CTPDW), which LUKOIL, Vanco, and GNPC have licenses to develop.

The Maersk Deliverer began drilling the first deepwater exploration well at the promising Buffalo structure of the offshore CI-205 block off Cote d'Ivoire on September 13.

Before drilling began at Buffalo, the Maersk Deliverer crew along with the oil workers on the platform carried out an important undertaking with the participation of LUKOIL Overseas representatives within the framework of a previously approved accident prevention policy. We are talking about a startup presentation for the day and night shift drilling team. During this detailed presentation, the plans for drilling the well were highlighted along with the risks involved. The workers were also introduced to the LUKOIL company itself, the investor and operator of the new Cote d'Ivoire project.

The Maersk crew members most actively engaged in maintaining industrial and physical safety, as well as in encouraging a zero mindset philosophy on the drilling rig, were presented with valuable gifts. One of them was Darwin Olea, hero of a brief joint press release, which came out on board on behalf of the companies involved in the program: LUKOIL, PETROCI, Oranto, and Maersk. Once seeing two colleagues working in a hanging basket without safety jackets, he immediately made them put them on while giving the violators a brief lecture on the importance of every item of the work uniform without exception.

The design depth of the well is 5,300 m from sea level at a water depth of more than 2,000 m. The CI-205 block, which is approximately 2,000 m2 in area, is 100 km from the coast of the Republic of Cote d'Ivoire. The sea depth within the boundaries of the block varies from 1,900 to 3,500 m. Geologically, the block is part of the Tano Basin. Its industrial oil- and gas-bearing capacity has essentially already been proven. For example, the largest oil field in the country, Baobab, has been discovered 15 km from the block.

The basic production sharing agreement for the CI-205 area was signed in July 2001. And LUKOIL joined the project five years later. Within the framework of the first geological exploration stage, 2D and 3D seismic explorations were carried out throughout the entire area. The minimum obligations for the second stage are drilling one exploration well, which, strictly speaking, has already started.

In April of this year, due to aggravation of the domestic political situation in Cote d'Ivoire, LUKOIL Overseas officially declared force majeure, which put implementation of the project on hold. But now, due to gradual normalization of the situation in the country, the Russian investor has fully resumed active operations within the framework of this same program. The project participants are LUKOIL (63%, operator), a private Nigerian company, Oranto Petroleum (27%), and government-owned company PETROCI Holding (10%).

Sierra Leone is next in line

So LUKOIL's specific and, we will add, extremely persevering large-scale plans in the Gulf of Guinea have moved on to the west - from Ghana to Cote d'Ivoire; but this is not the limit. Further west, is, and increasingly beckoning the oil producers from many countries, another natural treasure-trove of the same region - hydrocarbon-rich Sierra Leone. And we are pleased to say that the pioneer of foreign business expansion of the Russian fuel and energy complex has now arrived at this destination.

Indeed, in July 2011, LUKOIL acquired a large stake from Oranto Petroleum in one of the offshore upstream projects in the waters of Sierra Leone. This is the 49% stake the Russians acquired in the agreement on exploration and development of the deepwater offshore SL-5-11 block. It is located in the water area of Sierra Leone. LUKOIL's partner, Vanco Energy, that is, the same American company with which the project in neighboring Ghana is being developed, acquired a 21% stake in the block. Incidentally, all of these transactions have already been approved by the Parliament of Sierra Leone.

However, LUKOIL is not divulging the financial details. Indeed, big business has always been loath to open its hand. However, an anonymous, but well-informed source in the Company told a correspondent of the RBK Daily newspaper that the amount of the acquisition was probably symbolic. True, if we refer to unofficial, but extremely competent estimates, we can get an idea of just how "cheap" the transaction was.

So it would seem that the figure many specialists are interested in is really not very large at all. And it could well appear rather modest compared with the field's potential reserves. So, according to Deputy Head of the analytical department of Alor Invest Government Company Dmitry Lyutyagin, the cost of a share in the project might be between $50 million and $100 million. This is not very much given the current astronomical parameters the global oil and gas community is well acquainted with.

However, the Russian company will most likely spend much more on geological exploration. So there can be no talk as such about any "preferential treatment" or "behind-the-scenes political preference" with respect to this rather risky investment program. For example, America's ExxonMobil, "which also has an upstream project in Sierra Leone, invested around $500 million in geological exploration," revealed the same authoritative Moscow analyst.

In conclusion, for our most attentive and meticulous readers, we will add a few important benchmark data of yet another LUKOIL project. The SL-5-11 block, which is 4,022 km2 in area, is situated in the territorial waters of Sierra Leone on the shelf and continental slope of the Atlantic Ocean. The sea depth within the boundaries of the area varies from 100 to 3,330 m.

And, finally, one more significant detail. The block is part of an extensive geological basin which specialists call Sierra Leone-Liberia. During the past two years, several large oil fields confirming the basin's prospects have been discovered there. This has clinched LUKOIL's conviction that active operations in Western Africa are not only desirable, they are an absolute necessity.

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Oil of Russia, No. 4, 2011
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