Russian privately held oil producer Lukoil is closing in on a new offshore exploration deal with the Kazakhstan’s state-run oil and gas holding KazMunayGaz despite an earlier setback at another block in the Caspian Sea.

KazMunayGaz said that Lukoil representatives earlier this month travelled to the Kazakhstan capital Astana to discuss the finalisation of their joint venture to explore and develop three blocks — Kalamkas-more, Khazar and Auezov — in the Kazakh sector of the Caspian Sea. Kalamkas-More and Khazar host confirmed hydrocarbon reserves.

“We have entered the final stage of formalising corporate procedures for the sale of a 50% stake in [the blocks’ operator] Kalamkas-Khazar Operating to Lukoil. I would like to note mutual understanding and the absence of any controversial points in the negotiating positions of the parties. I am sure that our cooperation will be just as fruitful at the project implementation stage,” KazMunayGaz executive chairman Magzum Mirzagaliyev said.

KazMunayGaz added that Kalamkas-Khazar Operating plans to submit for approval a detailed development plan for the already confirmed reserves at the blocks to the Kazakh regulatory authorities before end-September.

First oil from the Kalamkas-More and Khazar blocks is expected between 2028 and 2029, with the new operator to continue exploration work on the assets from which international majors had walked away.

Kalamkas-more was previously in the hands of the Eni-led North Caspian Operating Company that developed the giant Kashagan shallow-water oilfield in the northern Caspian Sea, before the operator decided to relinquish the asset citing potentially excessive development costs.

Meanwhile, British supermajor Shell in 2019 exited its venture with KazMunayGaz to explore and develop the Khazar block after reportedly spending $900 million on exploration at this asset.

“The project was not competitive enough versus other opportunities in Shell’s global portfolio,” the company said at that time.

Kazakh oil and gas industry social network channel Energy Monitor suggested that the new projects might help to reverse the expected domestic decline in onshore oil and gas production, especially in the legacy province of Mangistau located to the southeast of the offshore blocks.

Additionally, local contractors may also benefit from the fabrication awards for new production platforms that Kalamkas-Khazar Operating is expected to place at Kazakhstan-based yards Kazakhstan Caspian Offshore Industries and Ersai.

Both yards have western partners and were established to supply the Kashagan project that operates from artificial islands in the Caspian Sea.

Similar to Kashagan, Kalamkas-more and Khazar lie in shallow waters of between six to eight metres that see strong ice ridge movements during the winter period, understood to be a major threat to any steel-based offshore installations in the area.

Earlier this summer, Lukoil told KazMunayGaz it was withdrawing from their joint venture to explore and develop the Zhenis block in the Caspian Sea after a 2022 wildcat was a duster.

Despite this exit, Lukoil has built a strong presence in Kazakhstan since the country declared independence in 1991.

Its chief holdings are minority stakes in the country’s first and third largest producers, Tengiz and Karachaganak, and in Caspian Pipeline Consortium that ships about 80% of Kazakh oil exports to international markets.

Lukoil is not under direct European sanctions however the Russian company has been forced to arrange the sale of its holdings on the European continent after Russia invaded Ukraine in February 2022.

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