LUKoil swigns 40-year contract with Saudi Arabia for gas extraction

In the Saudi capital Riyadh on Sunday, the president of the joint-stock company LUKOIL, Vagit Alekperov, and the Saudi minister for oil and natural resources, Ali al-Naimi, acting on behalf of the government, signed a contract for the exploration and development of gas fields and gas concentrate in an area known as Bloc A. The term of the agreement is 40 years. As reported to Rosbalt by the company's press center, Bloc A is an area located in the center of the country, next to the world's largest oil field, Gavar. The exploratory period will be five years. In that time, LUKOIL will drill a minimum of nine exploratory wells, and will conduct seismic tests in an area covering 875,000 kilometers. LUKOIL's expenditure on the exploration program will total $215 million.

For the realization of the project, a joint company has been established together with the oil company Saudi Aramco, in which LUKOIL will control an 80-percent share. The joint company has been given the name of LUKOIL Saudi Arabia Energy Ltd. ('LUKSAR'). In the event of a discovery of commercial significance, the recovered gas will be delivered to the internal Saudi market. In conjunction with such an eventuality, the possibility of exporting gas concentrate and sticky hydrocarbons has also been provided for. Once the expected volume of extraction has been realized, Saudi Aramco intends to use its own funds for the construction of a pipeline from the field to the nearest terminal in the Saudi pipeline system.

Representing LUKOIL in the realization of the project will be LUKOIL Overseas, a daughter company specializing in international upstream projects. Recently, a large group of specialists in a variety of disciplines from LUKOIL Overseas conducted a preliminary visit to Saudi Aramco's production facilities, at which time it studied the company's specific activities, including its production technologies and financial and economic standards and procedures.

In assessing the document's signing, LUKOIL's president, Vagit Alekperov, said, 'The Saudi project conforms with all criteria of effectiveness and competitiveness associated with LUKOIL, and represents an important stage in the realization of LUKOIL's strategy, which regards the Near East as an important area of development. It is also important for us that the project concerns gas, which corresponds with the transformation of LUKOIL from an oil company into an oil and gas company.'

The signing of the contract was made possible when LUKOIL entered the winning bid for a tender conducted by the Saudi government on January 26, 2004.

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