Exploration and production of oil & gas is
LUKOIL's main business and delivers the largest share of Company value (almost
50% of consolidated net profit of LUKOIL Group). LUKOIL has a high-quality
E&P asset portfolio, which is highly diversified in terms of geography,
reserve type, and levels of depletion.
The emphasis in geological exploration work abroad is to
prepare the resource base for rapid launch of production as part of the
Company’s strategy for intensive development of its international business. 2D
seismic work in international projects totalled 1,470
km in 2007, 3D work was 2,822
km2 and overall exploration drilling was 13,000 meters.
Spending on geological exploration outside Russia was $180 million. The Company
continued rapid development of its international Exploration & Production
business. The Group was involved in 15 geological exploration projects outside
Russia during 2007: in Azerbaijan, Colombia, Iran, Kazakhstan, Saudi Arabia,
Uzbekistan, Venezuela, and Cote d’Ivoire. LUKOIL Group constantly monitors
opportunities for participation in new, promising international projects, and
the Company acquired stakes in three new projects during 2007: an agreement was
signed in April with the American oil & gas company, Vanco Energy, for
acquisition of a 56.66% stake in three projects for geological exploration of
promising offshore blocks in the Gulf
of Guinea (Western Africa).
An agreement was also signed with
the Indonesian state oil company, Pertamina, for conduct of joint geological
exploration work in Indonesia over a two-year period. The agreement envisages
creation of a management committee and joint technical group for study of
several promising offshore and onshore areas in various parts of Indonesia. The
objective is to assess and interpret existing data in preparation for subsequent
geological exploration work and development of oil & gas areas. LUKOIL
signed a memorandum in 2007 with the state oil company, Qatar Petroleum, on
cooperation for exploration, development and rehabilitation of oil & gas
fields in Qatar.
LUKOIL’s
share of production in international projects was 5.545 million tonnes in 2007,
which is 2.3% less than in 2006. The volume reduction was due to completion of
the transaction for sale of a 50% stake in Caspian Investments Resources Ltd.
Daily oil production by Caspian Investments Resources Ltd. At the time of the
sale (based on its share in projects) was about 46,000 barrels. So the sale
reduced daily output of crude oil by LUKOIL Group by 23,000 barrels. However,
organic production growth in international projects was 9.8%, which almost
completely compensated shrinkage of production due to the sale of Caspian
Investments Resources Ltd. Most of the organic growth was from the
KarakudukMunai, Karachaganak and North Buzachi projects.
Production drilling in the Company’s international projects
was 327,000
meters, which
is 49% more than in 2006. The large growth of production drilling in 2007
reflects intensive field development as part of projects involving Caspian
Investments Resources Ltd. and as part of the Kumkol project. The number of oil
production wells outside Russia was 1,017, of which 861 were in use. 212 new
production wells were commissioned during the year. Average oil flow at wells
was 61.7 tonnes per day. Launch of new wells gave 420,000 tonnes of additional
production (Group share).
Production of marketable gas in 2007 as part of
international projects was 1.682 billion cubic meters, which is 41.6% more than
in 2006. The share of natural gas was 89%, which is 4 percentage points higher
than in 2006. The Shakh-Deniz and Kandym – Khauzak – Shady projects accounted
for most of the growth in gas output. LUKOIL gas production wells in
international projects totalled 79 at the end of 2007, of which 56 were in
use.
The
biggest volumes of marketable gas (1.046 billion cubic meters by LUKOIL’s
project share) were produced at the Karachaganak field in Kazakhstan, where
output increased by 4.2% compared with 2006. One multi-bore horizontal well was
launched at Karachaganak in 2007 and drilling of another multi-bore well was
completed. A further 6 such wells are to be brought into operation during 2008.
Project work was carried out in 2007 on the third stage of field development,
which will significantly increase capacities. The third stage will start to be
implemented in 2008.
LUKOIL
continued intensive development of its production projects in Kazakhstan,
investing $287 million in development of Kazakh fields during 2007.
LUKOIL
produced 1.60 million tonnes of oil and gas condensate in 2007 as its share of
the Karachaganak project in Kazakhstan. Production rose by 10.5% compared with
2006. One multi-bore horizontal well with daily oil flow of 1,400 tonnes was
launched in 2007 and construction of another multi-bore well was completed. A
further 6 such wells are due to be commissioned in 2008. Work was carried out in
2007 for the third stage of the project, which will involve substantial capacity
increases. Implementation of the third stage is scheduled to start in
2008.
Intensive
development of the Kumkol field in Kazakhstan was continued. A total of 25
production wells were commissioned and sidetrack drilling technology was tested.
Average oil flows from new wells, commissioned in 2007, were 77.9 tonnes per
day. A unit for primary disposal of water and a group pumping station were
completed as part of development of the system for maintaining reservoir pressure. A scheme for utilization of
associated gas was selected and agreed with the supervisory authorities in
Kazakhstan, and implementation was begun. The East Kumkol satellite field was
brought into production in 2007. Total output in the Kumkol project rose by 2.9%
in 2007 to 1.76 million tonnes (LUKOIL’s share). Output has now reached the
planned level and LUKOIL’s objective is to maintain production at this level for
as long as possible. 32 new production wells are to be drilled in 2008 and
sidetracks will be drilled at 10 wells.
In Egypt 13 new wells were launched as part of the Meleiha
project. They gave average daily oil flow of 43 tonnes. An extension of the
concession agreement for the Meleiha block up to 2024 came into force in 2007. A further 32 wells are
to be drilled in 2008.
A system of reservoir pressure maintenance was made ready
for launch as part of the WEEM project in Egypt and well drilling will be
restarted in 2008. A total of 5 new production wells are to be drilled in the
project. The share of production of LUKOIL Group in Egyptian projects remained
at its level in 2006 (200,000 tonnes).
Test
production was carried out at the first exploration well as part of the Condor
project in Colombia and 1,400 tonnes of high-quality Vasconia crude was
produced. Work began on a development plan and a schedule for field
preparation.
Production
of gas condensate began in 2007 at the Khauzak area (part of the Dengizkul gas
condensate field in Uzbekistan, which is being developed as part of the
Kandym — Khauzak — Shady project). A complex system was put in place
for transportation of gas condensate to Uzbekistan’s Dzharkurgansky Oil
Refinery.
A key event in 2007 was launch of natural gas production at
the Khauzak gas area as part of the Kandym — Khauzak — Shady PSA project in
Uzbekistan. Peak production in the project will be about 12 billion cubic meters
per year, which exceeds overall natural gas production by LUKOIL in 2007.
