RusEnergy

3/16/2006 Analytical department of RIA RosBusinessConsulting - The company is taking over its partner in the Karakuduk oilfield project, Chaparral Resources -
LUKoil is strengthening its position in Kazakhstan. On Monday it announced the acquisition of its partner in the Karakuduk oilfield project, Chaparral Resources, for $88.6 million. This is seen as a fair price. The purchase will allow LUKoil to develop an oilfield with proven reserves of 45.3 million barrels of oil, or about 6 million tons. LUKoil is expected to continue its aggressive policy in Kazakhstan, but it is unlikely to make large acquisitions there. Chaparral Resources operates exclusively in Kazakhstan. Its ordinary shares are traded over the counter in the United States. LUKoil Oversees has a 60 percent stake in Chaparral Resources (the stake had been owned by Nelson Resources, which LUKoil purchased in December 2005). Chaparral Resources and LUKoil Oversees jointly own KarakudukMunai, a Kazakh company which holds a license for the Karakuduk field. Karakuduk ("Black Well"), 68 square meters in size, was opened in 1972. McDaniel & Associates estimated its proven reserves at 45.3 million barrels of oil. The oilfield produced 3.5 million barrels of oil in 2005, up 30.6 percent on the year. LUKoil Oversees, operator of LUKoil's international projects, signed a takeover contract with Chaparral Resources. The deal is expected to be completed in May 2006. At the first stage, LUKoil Oversees will buy Chaparral Resources stock owned by other shareholders. The recommended price is $5.8 per share, 12.3 percent above the average price of Chaparral Resources shares over the past 30 days. LUKoil will pay about $88.6 million to buy Chaparral Resources shares from other owners. The value of Chaparral Resources' proven oil reserves will be $8.1 per barrel. Analysts say this is a fair price. "When LUKoil purchased Nelson Resources last year, it paid $7.4 per barrel," said Denis Borisov, an analyst with IFK Solid. Alexander Blokhin, at Antanta Capital, thinks the insignificant gap in prices is within normal price fluctuation. Chaparral Resources is an active oil producer, which lowers geological risks. "Besides, political risks in this region are much lower than, say, in South America, where LUKoil also has projects," he added. China's CNPC had offered to pay $10.6 per barrel of PetroKazakhstan's proven reserves. "So, the price paid by LUKoil is within the acceptable price range," Borisov told RBC Daily. Interest in Kazakh oil and gas reserves has been very strong in recent years, observers say. "During the Soviet era, Kazakhstan was seen as the second largest oil-bearing province after Western Siberia. Kazakh authorities see Russian companies as a counterbalance to the aggressive expansion by Chinese oil producers, that is why they support LUKoil," Blokhin noted. Borisov thinks demand for Kazakh oil is set to rise while the world's largest oil suppliers in the Middle East are becoming less popular due to instability in the region and small chances of opening new huge reserves there. Acquisition of Chaparral Resources could become LUKoil's last major acquisition in Kazakhstan over the next few years. LUKoil President Vagit Alekperov said on Monday that his company was unlikely to make further acquisitions in Kazakhstan in 2006, but it would instead concentrate on restructuring its assets in the republic. Experts offer various explanations for LUKoil's decision to halt its expansion to Kazakhstan. "The company wants to focus on its gas and processing projects," Borisov said. Blokhin believes the company was faced with the problem of transporting oil from the region, which it hopes to solve by building a pipeline through Azerbaijan. Or perhaps there are no more interesting assets left in Kazakhstan. But this does not mean that LUKoil will not make acquisitions abroad at all. According to the latest information, it plans to buy a stake in the Serbian oil refinery Naftna Industrija Srbije, with annual sales of EUR 1.8 billion. According to the British newspaper The Business, LUKoil is also eyeing an Italian oil refinery owned by Libya's Tamoil offering valued at $2.5 billion. Despite those large-scale acquisitions, LUKoil is expected to continue buying minor stakes in Kazakh oil producers.