ANNUAL REPORT 2005 - Lukoil

THE CASPIAN SEA
The Caspian littoral states (Russia, Azerbaijan, Iran, Kazakhstan and Turkmenistan) are gradually
resolving issues connected with the legal status of the Caspian and rights to use of its resources.
Although it has not yet been possible to reach universal agreement, major steps towards such
agreement have been taken. On the basis of bilateral agreements (Russia–Azerbaijan and Russia—
Kazakhstan) and a trilateral agreement (Russia–Azerbaijan–Kazakhstan in May 2003) the northern
part of the Caspian Sea, which occupies 64% of its total area and where the biggest hydrocarbon
fields and the main international projects are located, was divided into three parts. As a result
Kazakhstan took 27% of the total area of the Caspian Sea, Russia took 19% and Azerbaijan took
18%. A further step was taken in January 2005 when the Presidents of Russia and Kazakhstan
signed an agreement on the Russian–Kazakh state border, finalizing agreement on the demarcation
line between the states in land and sea parts of the Caspian region.
LUKOIL IN THE CASPIAN REGION
LUKOIL is carrying out work in the Russian sector of the Caspian Sea as well as in the Kazakh and Azerbaijani
sectors. In the Russian sector, LUKOIL is working independently at the North-East, North, Central-Caspian
and Yalama-Samursky license areas. The Company is also working jointly with Gazprom and KazMunaiGaz
at the Central area (LUKOIL has 25% interest in the project, Gazprom also has 25%, and
KazMunaiGaz has 50% interest). LUKOIL is working with Gazprom and YUKOS at the North-Caspian area.
The large amounts of time, effort and money which LUKOIL has invested in development of its resource
base in the Northern Caspian have been rewarded. Geological exploration work carried out by
the Group in the Russian sector of the Sea in 1995–2004 led to discovery of five large fields: Khvalynskoye
(2000); Yu. Korchagin (2000); 170th Kilometer (2001); Rakushechnoye (2001) and Sarmatskoye
(2002). Use of the latest technologies has enabled unprecedented levels of exploration efficiency by
Russian standards: efficiency of exploration drilling has exceeded 15,000 tonnes of reference fuel per
meter drilled (12 times higher than the Company average), and the success rate of prospecting and
exploration drilling has been 100%, i.e. each field was discovered by the first prospecting well, which
was drilled. At the same time the cost of one reference tonne reserve addition was more than ten times
lower than that of major international oil companies.
The history of LUKOIL success in the Northern Caspian
was continued in November 2005, when the Company
discovered a new oil and gas condensate field –
the V. Filanovsky field. Provisional assessments suggest
that the field is the biggest in the region. The discovery
well gave flows of light, water-free oil at a daily
rate of 6,400 barrels, which is unusually high for Russia
and comparable with rates in the Middle East. Probable
and possible reserves at the new field are estimated
at 600 million barrels of oil and 985 trillion cubic
feet of gas. These reserves will be upgraded to 'proved'
category after supplementary exploration, preparation
and confirmation of project documents for development
and construction of the field.
LUKOIL 3P Reserves Structure
in the Northern Caspian, as of January 1, 2006
Sarmatskoye 14.7% V. Filanovsky 18.9%
Rakushechnoye 15.1%
Yu. Korchagin 14.2%
170 th Kilometer 4.4%
Khvalynskoye 32.7%
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