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OIL PROJECTS of the RUSSIAN COMPANY Lukoil ON the CASPIAN SEA at the end of the 20th century.



ismait AGAKIShIEV

OIL PROJECTS of the RUSSIAN COMPANY Lukoil ON the CASPIAN SEA at the end of the 20th century

In article the role and importance of creation by the large Russian companies of economic and humanitarian relations between the people and the countries of the former Soviet Union during very difficult period in the history - is analyzed the 1990th

The article analyzes the role and importance of establishing economic and humanitarian ties between nations and countries of the post-Soviet space by big Russian companies during a very difficult period of history - in the 1990s.

oil, industrial engineering, former Soviet Union, humanitarian cooperation, Lukoil; oil, industrial engineering, post-Soviet space, humanitarian cooperation, LUKOIL company.

The Lukoil oil company was created by the Resolution of Council of ministers of April 5, 1993 according to the Decree of President of the Russian Federation No. 1403 of November 17, 1992. "About features of privatization and transformation to joint-stock companies of the state enterprises, production and scientific and production associations of oil, oil-processing industry and oil products supply" in the form of Lukoil Oil Company public joint stock company 1. The history of creation of Lukoil is encrypted in the first three letters of the name: "L" is Langepasneftegaz, "At" — Uralneftegaz and "To" — Kogalymneftegaz. These three oil-extracting associations were a part of the company to which share 25% of oil production of Western Siberia, or 15% of oil production of Russia fall. Besides, Lukoil included two oil refineries (Permnefteorgsintez and the Volgograd oil refinery) and also association Nizhnevolzhskneft. Historical experience of so-called "Seven sisters", namely vertically integrated form of these giants of world petrobusiness became a basis of the first largest Russian private oil company: "from the well to gas station".

Advantages of such structure became noticeable in the first years of existence of the company. On a number of the major operational performance the Lukoil company had more good results, than industry average across the Russian Federation in general and the Tyumen Region in particular. So, in 1993 in comparison with 1992 use of an operational well stock made on the Tyumen Region 102.1%, across Russia — 99.3%, on the Lukoil company — 103.8%. Falling of oil production in the area these years was 16.4%, on Lukoil — 14.5%. Input of oil wells on area made 106.3%, across Russia — 110.7%, on Lukoil — 137.8%. Input of wells across Russia grew by 1.5%, on area — for 9.7%, on Lukoil — for 47.3%.

In 1994 Lukoil Oil Company was the most active participant of introduction of projects in the Post-Soviet abroad among the oil companies of the Russian Federation. Achieved the most notable result of Lukoil Oil Company in Azerbaijan and Uzbekistan. Already then characteristic of the company is an increase in financing of development and production of the competitive equipment for oil production

AGAKIShIEV

Ismail

Alovsat Ogly — to. and. N, the associate professor of department of history of MSU of

M.V. Lomonosov and RGGU, the assistant manager department of the countries of the Post-Soviet abroad on study of RGGU a1tatsheg412@ £таП.

1 All about Lukoil//Oil of Russia, 1994, 6, page 4.

and reduction of purchases of the equipment on import.

On May 12, 1993 in Elista the president of the company V. Alekperov and the president of Kalmykia K. Ilyumzhinov concluded the agreement providing transfer to Lukoil of the right for carrying out contract works on development of the Kalmyk site of the shelf of the Caspian Sea. Seeking to be fixed on the Caspian sea offshore, the company was included into consortium on development of the Azerbaijani fields, concluded the agreement similar Kalmyk, with the authorities of Dagestan and the Astrakhan Region. In 1994 Lukoil offered for sale 10% of the stocks fixed in the property of the state for the sum of 1.62 billion rubles. Stocks had to be sold at a check auction. The oil companies in Russia were created according to the decree of the president signed at the end of 1992. According to it, the controlling stake of the companies (45%) was fixed in state ownership for a period of 3 years. During this period the right to vote at meetings of shareholders on this package belonged to representatives of the State Property Committee, Ministry of Fuel and Energy and State committee of the Russian Federation on the antimonopoly policy (GKAP).

40% of authorized capital of the company were subject to sale at the investment auction, at the same time it was supposed to sell 15% of shares from this quantity to foreign investors. The remained stocks had to be sold at monetary auctions to citizens of Russia after July 1, 1994. Stocks of the first created companies — Surgutneftegas, Lukoil — were sold at the voucher auction. Stocks of other companies (Slavneft, Sidanko") on them were not sold since their authorized capital was not created till July 1, 1994. In government institutions treated privatization of the oil companies differently. Some did not want it, being afraid of weakening of control of the state over the oil industry.

In 1991 the Lukoil company came into business contacts with the Italian oil company Agip, in particular concerning works on the Russian shelf of the Caspian Sea. The joint venture had more opportunities of attraction of finance for realization of grain -

ny international projects since guarantees of the Agip company extended to it. The world oil companies worked in all sectors of the Caspian Sea, closely with the Russian companies and on their fields.

The management of the companies highly appreciated restoration of intereconomic relations between the states of the former USSR and enterprise structures of the oil companies created in the neighboring countries. Among these enterprises a specific place is held by the Lukoil — Baku enterprise operating in the Azerbaijan Republic in which 100% of an authorized capital belong to the founder. It conducts procurement of the oil equipment at machine-building enterprises of Baku and delivery to its oil processing enterprises of JSC Lukoil.

Also direct connections between Lukoil and GNK AR were established. The arrangement on interaction between two oil companies (under the agreement of September 17, 1993) covers quite wide range of joint activity: search and investigation of fields of hydrocarbons, drilling of search and exploratory wells. Receiving mutual benefit from processing of raw materials at free capacities of both companies, profit not only on production, but also and on joint selling of the received products was expected. Also the possibility of realization of the oil equipment in foreign markets was not excluded.

The agreement on creation of joint enterprise structure in which shares of each company will make 50% was reached. The enterprise named "by Azeri — Lukoil", had to be engaged in exploration and production of oil on fields of Azerbaijan. The joint venture with participation of the Uzbekneftegaz company was created, in the project there was also a creation in 1994 of the companies in Kazakhstan and Turkmenistan. Same year the association Roskaspneft where entered Rosneft, Lukoil and the Astrakhan shipbuilding plant "Red Barricades" was formed. Association intended to build the first drilling platform on the Dagestan shelf. The Feasibility Study (FS) on this project was prepared by the English firm SP KESK which won the tender on

development of this field together with Roskaspneft also founded Kasp Oil Development joint venture 1.

Creation of the joint venture and carrying out the tender meant objective economic inevitability of free action of the Caspian countries on the Caspian Sea. At the same time is watered. V. Razuvaev wrote N: "The state institutes, including the Ministry of Foreign Affairs, still consider themselves to have the right to define individually policy of the countries in an oil question. Extent of influence of petroleum producers is defined by also traditionally belittled position of the industry in domestic policy" 2.

The profitable industry in 1991 — 1994 was imposed with non-payments and received about 10% of the price of the exported crude oil. The financial problems existing at that time were one of the main reasons interfering joint cooperation between the Post-Soviet countries. For example, obligations of the parties between Russia and Kazakhstan were not fulfilled on mutual deliveries. In 1991 — 1994 the non-payments between the states were a commonplace. The debt of Kazakhstan for the received fuel and energy resources for January 1, 1995 was 669.7 billion rubles, for oil products — 6.81 billion rubles. Consumers of the Russian side owed to suppliers of oil in Kazakhstan approximately the same sum. Ministry of Fuel and Energy of Russia and the former Ministry of Fuel and Energy of Kazakhstan for 1993 for deliveries of resources and the performed works in 1994 were practically not involved in carrying out calculations, also the mechanisms simplifying mutual settlements were not used in a due measure of a form. The problem reached such level that the states were forced to draft the provision on orders and repayment periods of debt on mutual obligations of the enterprises.

Cooperation with the western campaigns was necessary as the Russian enterprises at that time had neither technologies, nor large financial opportunities. Adoption of law on the section produk-

was the main thing for investors
1 Oil of Russia, 1995, 2, page 38.
2 V. Razuvaev. Oil and policy of heads.

Energy industry Oil of Russia, 1995, 1(4), page 23 has to learn to advocate the interests//.

tion. The long-awaited decree "About Primary Measures for Improvement of Activity of the Oil Companies" signed by the President of Russia on April 1, 1995 became a powerful factor in ordering of structures of the companies and strengthening of their positions in oil industry. The vice president of Lukoil Oil Company Leonid Fedun noted that the presidential decree on the basis of which the first oil companies were created carried lines of a compromise as he prepared in the middle of 1992 when the psychology of our society was other, than today. Decree No. 327 kind of finishes formation of a political basis of privatization of an oil complex in Russia. The main innovation of this decree was the fact that the oil companies become the main subjects of activity in the oil and gas sector. As Alekperov noted, the decree allowed the oil companies formed in 1992 to create really vertical structure. The decree also allowed to attach to Lukoil of the enterprise which for one reason or another were not a part of the company, for example the enterprises of oil products supply on the Caspian Sea. Due to the adoption of this decree JSC Lukoil made the decision on transition to the uniform stock of the company.

the company passed

Since the beginning of 1995 to the new consolidated organizational structure of management. The essence of organizational reorganization consisted in elimination of the being available fragmentation at the level of the enterprises and creation of the large production structures capable to quickly resolve all complex of economic issues. It allowed to reduce central office and to transform it for concentration on the solution of the main strategic and financial questions.

In September, 1993 the framework agreement between GNK ARE and Lukoil Oil Company on the basic principles of cooperation, including joint exploration and development of fileds in Azerbaydzhane3 was signed. In November, 1993 the intergovernmental agreement on a cedation of GNK AR of 10% from the 30 percent share in konsortsi-was signed

3 Forest warden V. [vice president of JSC Lukoil]. We chose a way of economic cooperation//Oil of Russia, 1995, 6(9), page 7.

mind on development of Azeri fields and Chirag in favor of JSC Lukoil. From Russia an agreement was signed by the Minister for Fuel and Energy of the Russian Federation Yu. Shafranik.

"The contract of a century" was signed by the representative of Ministry of Fuel and Energy of the Russian Federation S. Pugach. The first tasks of JSC Lukoil Oil Companies as it is written down in statutory documents, satisfied needs of the shareholders from which the state was the main thing. The total investment amount of expenses under the contract for Lukoil was 800 million US dollars. But their compensation had to begin with the first ton of oil. A half of income was received by the state in a type of tax and in the form of the share in the Lukoil company.

The oil companies of Russia were positive to a question of development of oil fields together with the foreign companies.

The position of Russia was that oil reserves have to be in the general possession and be got only together. At each state, 12-mile zones have to be kept, and sea possession beyond their limits will be the general property. The collective body which would grant licenses to all oil refining companies according to their technical capabilities and taking into account an ecological situation has to be created.

At the level of the MFA, Ministry of Fuel and Energy and Roskomnadzor the document on sharing of the Caspian sea offshore was prepared. It was dispatched to all Caspian republics. Originally this project was supported by all states, except Azerbaijan. However then both Kazakhstan and Turkmenistan opposed the idea of a joint research of the Caspian Sea, having expressed the support to the oil Azeri project — Chirag — Gyuneshli.

At that time in the Russian foreign policy the point of view prevailed that all Caspian oil and gas resources belong equally to all Caspian countries. It proceeded their of the fact that the former USSR which successor was the Russian Federation spent huge amounts of money for investigation mestorozhdeniy1, and now any of

1 In the same place, page 5.

again arisen sovereign states cannot appropriate them even if they are in its exclusive economic zone. Such point of view can be understood, but it is necessary to recognize also a position of Azerbaijan for which during that difficult period the development of fields on the of the chasti_kaspiysky shelf was the only means to defend the state sovereignty.

Of course, there would be fair a participation of all Caspian countries in joint development of oil, but without means of and technologies of world oil giants it was impossible both on political, and for the economic reasons. It was necessary to be reconciled, cooperate with it, but not to block potential projects. Unfortunately, the return policy followed, and the oil companies of Russia missed great opportunities and time.

Business reached to the point of absurdity. In the Russian sector, oil fields were also found, it was equally well possible to expose them on the international competition. But there were orders of the president forbidding to the Russian companies to participate in development of the Caspian sea offshore. To the north of the 45th parallel there passes the reserved zone, and the rest made, according to the Russian government, the general possession of the Caspian states. Oil could be extracted there after creation of Committee on the Caspian Sea. In essence, also the Russian fields were frozen not to create a precedent. This policy led to the fact that Russia in Azerbaijan could appear as the passive observer. She forbade the companies to participate in projects, and with pleasure the western competitors were ready to take their place. For 5% in "the contract of a century" received by the Exxon company with the state support also Rosneft could apply.

It was necessary to separate policy from economy and not to wait when diplomats come to a consensus. This question was business of the state importance. The Lukoil company, understanding that politicians can long agree, and you will not overtake for the missed time, got into gear in the Azerbaijani sector of the Caspian Sea.

Crawford Denis
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