Lukoil steps into Caspian field with new rig

Lukoil has started exploration of untapped oil and gas deposits in the Caspian Sea. Deputy prime Minister Igor Sechin says the highly technological project sets an example for other Russian energy companies.

$2 billion – and 14 years of preparation – can buy you your very own oil rig in the Caspian Sea – the region that sits on 10% of the planet’s potential oil reserves. Russia’s biggest privately run producer – Lukoil – has held its first ceremonial drilling – and it went down well.

Lukoil has taken its first step to explore oil reserves at the bottom of the Caspian Sea. The next oil platform will be built in 2013. All in all, an estimated 30 oil platforms will be built in the coming decade.

The company’s head, Vagit Alekperov, promised the first batch of oil would flow in March 2010 and asked for a tax holiday.

”We believe that paying export tax for pilot oil projects in the Russian part of the Caspian Sea should be delayed for some time to make them profitable. This will allow us to reinvest in building new infrastructure and especially gas and oil transport systems.”

Profit margins at the off-shore Caspian projects for Lukoil hover around 10% compared with the industry average of 15%. Igor Nasenko, Head of the Yuri Korchagin oil rig says extracting oil is difficult here and requires sophisticated equipment to allow for horizontal drilling.

”This Yuri Korchagin project is substantially more difficult to develop than other projects we did in the Caspian Sea. We will have to do horizontal drilling here. It requires advanced equipment but also increases the output.”

Russia´s deputy prime minister, Igor Sechin, was present at the drilling promised to look into how the state can help lift the burden of costs from Lukoil’s shoulders.

”This is the first platform of its kind launched independently by a Russian company. This project ties together extraction of oil and its transportation. This huge investment must ensure effective work – but the cost should be borne by the consuming market. So we will work with the consumers and work out how to stimulate development on the shelf.”

After the collapse of the Soviet Union two other Caspian nations – Azerbaijan and Kazakhstan have been active in oil extraction – which contributes significantly to government coffers. Now the time has come for Russia to get its piece of the oily pie.