Lukoil's Caspian oil ambitions captive to Eurasia Drilling backlog

OAO Lukoil and the Russian state’s ambitions to supercharge exploration in the Caspian Sea are captive to a backlog of orders for rigs at Eurasia Drilling Co.

“Our aim is to more aggressively develop the offshore, to kickstart the program,” Lukoil’s billionaire shareholder Leonid Fedun said in an interview with Bloomberg News in Moscow. “The level of drilling will depend on the technical abilities of Eurasia Drilling. They have rigs, but there is a line.”

Russia, dependent on oil and gas for about half its annual tax income, wants companies to tap offshore oil as the nation’s main land-based Siberian operations show their age. To encourage investment, a state commission ruled some offshore permits issued to companies like Lukoil are valid regardless of legislation in 2008 that limited rights to government-owned businesses.

While most of Russia’s offshore potential is in Arctic seas, Caspian projects that are already in development will be the first to add new barrels needed to keep output stable.

“Now there are no reservations that our exploration work can be handed to someone else,” Fedun said yesterday, June 25.

Eurasia Drilling, the dominant supplier of jackup rigs used in Caspian exploration, said in a March presentation for its 2013 results that it had a $1.2 billion offshore backlog. It has three jackup rigs at work and another is being built.

“There is certainly demand for rigs and that’s why we added a new rig at the end of last year and will deliver another at the end of this year,” Tom O’Gallagher, vice president for investor relations at Eurasia, said by phone today, June 26. “If there is a commitment to more work available, then we will certainly consider investing in another rig.”

Current exploration, using as many as eight wells in the inland sea this year, is expected to result in a significant increase in reserves at the Kuvykin deposit, Fedun said.

“We need to drill more but I can already say now that it will be hundreds of millions of barrels, mainly oil,” he said. “Our strategy without a doubt will be structured with an emphasis on the Caspian. This is priority number one.”

Lukoil, which now produces oil from the Caspian’s Korchagin deposit, began moving an upper platform to the Filanovsky field from Astrakhan shipyard yesterday, Russia’s second-biggest oil company said in a statement. The field will begin producing at the end of next year or start of 2016.

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