Risky project

LUKOIL sold half of Nelson to Lakshmi Mittal's structure

Lukoil Overseas announced yesterday the sale to India's Mittal Investments of a 50% stake in Caspian Investments Resources, which has the assets of Nelson Resources on its balance sheet. According to a press release from the Russian company, the transaction amounted to $980 million, in addition, the structure of metallurgical magnate Lakshmi Mittal has committed to repay half of Caspian Investments' debt, that is, approximately $160 million. The deal is expected to be completed early next year . The reasons for such a hasty sale of an asset purchased only a year ago at the same price are not disclosed by either Lukoil Overseas or LUKOIL itself. Experts suggest that the Kazakh projects did not live up to the expectations of Vagit Alekperov’s company.

Nelson Resources' total proven and probable hydrocarbon reserves amount to 227 million barrels (about 30 million tons). The company owns shares in five projects in Kazakhstan, three of them - Alibekmola, Kozhasai and Arman - it is developing on a parity basis with Kazmunaigas. Nelson shares the Northern Buzachi project equally with the Chinese CNPC. Nelson owns 76% of the Karakuduk deposit. In addition, Nelson Resources has an option to purchase from Kazmunaigas a 25 percent stake in two geological exploration projects in the Kazakh sector of the Caspian Sea - South Zhambay and South Zaburunye.

LUKOIL agreed to purchase 100% of the shares of Nelson Resources for $2 billion in cash in October last year. And in December, after a short battle with Nelson's minority shareholders, the deal was closed. Under it, LUKOIL attracted the largest syndicated loan in its history - for $2 billion, expecting an almost threefold increase in oil production in this area. As vice-president of the company Leonid Fedun said then, due to this deal, by the end of 2006, production in Kazakhstan was supposed to increase from 6 to 10% of its total volume. In the next five years, it was planned to invest about $700 million in the development of these fields, according to the head of Lukoil Overseas, Andrey Kuzyaev.

Lukoil Overseas did not name the reason that prompted the company to create a joint venture with Mittal, nor the amount of funds invested by LUKOIL’s subsidiary in these projects. As LUKOIL Vice President Leonid Fedun said last Monday, the company will create consortia to work on risky projects. According to him, this is a normal world practice when partners share risks when investing in complex geological projects. Apparently, the development of Kazakh deposits turned out to be such a risky enterprise, requiring the participation of a foreign partner.

“Perhaps the company is trying to reduce its participation in Kazakhstan in order to acquire new oil and gas assets in this country in the future,” notes MDM Bank analyst Andrey Gromadin. In his opinion, we can talk about the remaining 50% of the shares of Turgai-Petroleum or a share in another large Kazakh asset, Mangismaimunai, with reserves of 500 million barrels (about 70 million tons).

Mittal can act in the interests of the Indian ONGC, the analyst believes, because the companies recently signed a cooperation agreement on the acquisition of mining assets.

Anna GORSHKOVA