Russian Lukoil pays $200 million to KazMunayGas for a 50% stake in oil project

Lukoil, one of the biggest oil companies in Russia, has paid $200 million to KazMunayGas (KMG) for a 50% stake in the Kalamkas Sea project. Under the deal, the two companies will produce oil in three oil fields: Kalamkas Sea, Khazar and Auezov. The deal was reached in February 2023 and closed in September. According to Kommersant, a Russian business media outlet, KMG disclosed the contract value in its annual report.

Lukoil paid for a 50% stake on September 21, 2023, and may pay an additional $100 million as a reward if «certain requirements are met.»

«KMG has considered an additional reward as a financial asset measured at fair value through gain and loss at $29 million on the side of other financial assets in its consolidated financial statement,» KMG said in its report.

Interestingly, KMG invested almost the same amount of money in its former subsidiary: $200 million. According to the financial statement, this money is now considered an investment in the joint venture on a quota-share basis.

From January 1 to September 11, 2023, Kalamkas-Khazar Operating, an operator of the Kalamkas Sea project, reported $521,288 in losses, $15,661 in revenue, and $241,627 in administrative costs. Its assets and liabilities are estimated at $45.8 million and $13.4 million, respectively.

When oil production starts

In September 2021, President Kassym-Jomart Tokayev announced the start of exploration at the Kalamkas Sea and Khazar oil fields in conjunction with Russian Lukoil. At the initial stage, the volume of investments into the projects was assessed at $5 billion. The announcement was made against the backdrop of oil depletion at the current fields in Kazakhstan and the expected decline in oil output by 2030.

Kalamkas-Khazar Operating was established to supervise the exploration of the Kalamkas Sea, Khazar and Auezov oil fields. In February 2023, KMG and the Ministry of Energy signed an improved model contract on oil production in this field. Under the deal, the investor was supposed to pay a $32 million subscription bonus, raise $6 billion in direct investments and create about 2,000 new jobs.

Kalamkas-Khazar Operating is headed by Kurmangazy Iskaziyev, who, from February 2022 to January 2023, worked as deputy head of KMG Exploration. Until February 9, 2023, when KMG signed a contract with Lukoil, it fully controlled the company. The two oil companies plan to export oil abroad and supply it to the domestic market of Kazakhstan. The Ministry of Energy expects Kalamkas-Khazar Operating to start oil production in the Caspian Sea in 2028-2029, heavily relying on Kazakhstan-made goods, works, and services.

In mid-August 2023, KMG CEO Magzum Mirzagaliyev said that the sale of a 50% share in Kalamkas-Khazar Operating to Lukoil had reached its final stage.

In April 2024, KMG plans to hold an open-door day for its big oil and gas projects, including Kalamkas/Khazar, to show its procurement plans to domestic businesses.

Joint projects of KMG and Lukoil

In June 2023, Kazakhstan and Russia agreed to cooperate on 29 industrial projects worth $9 billion. According to ex-Prime Minister Alikhan Smailov, the two countries have more than 100 cooperative projects in the sphere of industry worth more than $22 billion, and the number of «such projects is growing by dozens each year.» Over the past 17 years, direct investments from Russia to Kazakhstan reached almost $20 billion. In turn, Kazakhstan has invested around $6 billion in Russia.

Apart from Kalamkas-Khazar Operating, KMG and Lukoil run four joint projects. In 2019, the Russian oil company obtained a 50% stake in the Zhenis oil field from KMG. In 2021, it acquired 49.99% of the Al Farabi oil field. Both oil fields are located near two other fields KMG and Lukoil have been developing: the Central oil field (Lukoil and Kazprom control 25% each) and Khvalynskoye (Lukoil controls 50%).

In addition, Lukoil and KMG are also considering prospects for a consortium between their subsidiaries KMG Engineering and Lukoil Engineering to accelerate cooperation in engineering and R&D support within their joint projects, including Kalamkas/Khazar, and operational activities.

KMG is the national oil company in Kazakhstan controlled by Samruk Kazyna (67.42%), the Ministry of Finance (20%) and the National Bank (9.58%). The remaining 3% of KMG shares are available on the Kazakhstan Stock Exchange. In turn, the government of Kazakhstan fully controls Samruk Kazyna (100%). As of April 8, 2024, the market value of KMG shares is $29.03 per share.

Established in 1992, Lukoil accounts for 2% of the global oil output. As of 2022, Vagit Alekperov, the company’s founder, controlled 3.12% of its shares. He also possesses a beneficial interest in 5.43% of the shares with no voting rights. According to Lukoil’s prospect published in September 2021, Alekperov directly and indirectly owned or had beneficial interest through family trusts and mutual funds in 28.33% of the company’s stocks, while Leonid Fedun controlled 9.32%.

In 2018, Russian Forbes reported that Alekperov and Fedun controlled 24.8% and 9.9% of Lukoil’s shares, respectively. IFD Capital (8%) and Lukoil Investment Cyprus (16%) were two other big shareholders of the oil company. In mid-March, after KMG released its financial report for 2023, the Lukoil stock price slipped by 1.2% to $79.27. As of April 8, the stock is traded at $83.14 per share.