Lukoil enters royalty talks in Uzbekistan

27 September 2017, Week 38, Issue 950

Russia’s Lukoil, the biggest foreign investor in Uzbekistan, is in talks with authorities in Tashkent over royalties at the Southwest Gissar gas project and has downgraded its forecast for gas production in the double landlocked former Soviet state.


Company president Vagit Alekperov and Uzbek Prime Minister Abdulla Aripov attended a ceremony last week marking the formal launch of a new 4.4 bcm per year gas processing facility at the Gissar fields, situated in the southern Uzbek region of Qashqadaryo. In a statement on September 23, the Russian company said it had also commissioned a pre-treatment unit at the site as well as six gas gathering points. Output at the fields is now projected to climb to a plateau rate of 5 bcm per year, up from 1.7 bcm last year and 1.3 bcm in 2015.

In an interview with Russia’s Rossiya 24 television channel on September 25, Alekperov said Lukoil wanted to adjust the royalty rate at the Southwest Gissar project to account for the fall in global gas prices in recent years.

“All our investments [in Uzbekistan] were calculated on a profit level of about 14-16%. Unfortunately, with the change in gas prices on the global market, the [Southwest Gissar] project’s efficiency fell,” he said. “But we are negotiating with the government to carry out economic adjustments. The Uzbek government understands us.”

Southwest Gissar is one of Lukoil’s two largest investments in Uzbekistan, the other one being the Kandym-Khauzak-Shady (KKS) gas development in the southwestern region of Bukhara near the Turkmen border. According to Alekperov, the royalty rate at the KKS project has already been adjusted.

Lukoil also said over the weekend it planned to ramp up gas production in Uzbekistan to 16 bcm per year by 2020, down from an earlier forecast of 17-18 bcm. The Russian independent did not explain the revision, but said that by the end of the decade, some 11 bcm per year would be produced from the KKS fields, along with 5 bcm from Southwest Gissar. The company’s Uzbek assets are expected to yield 9 bcm this year.

Lukoil landed a 36-year production-sharing agreement (PSA) with Tashkent for subsoil rights to the Southwest Gissar block in 2007. The acreage contains the Dzharkuduk, Gumbulak, Amanata, Pachkamar and Adamtash gas fields along with the Southern Kyzylbayrak and Koshkuduk oil deposits. First gas was announced in late 2011 at the Dzharkuduk deposit, which yielded 1.1 bcm in the following year. Lukoil assessed the seven fields’ proven reserves at 270 billion boe at the end of 2016, versus 241 billion boe a year earlier. The company embarked on full-scale development of the Southwest Gissar block in March 2016, securing a US$500 million loan to bankroll its investments in November of that year.

Joseph Murphy

Edited by

Joseph Murphy


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