Arbitrator Confirms Lukoil's Right to Stake in Turgai JV


Turgai and Chu Hydrocarbon Regions
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On October 27 the Arbitration Institute of the Stockholm Chamber of Commerce (Sweden), having considered the lawsuit of PetroKazakhstan Inc. against LUKOIL Overseas on its merits - and also the counter-claim of LUKOIL Overseas, took several decisions, including inter alia the confirmation of the pre-emptive right of LUKOIL Overseas to acquire 50% share in the Turgai Petroleum joint venture (Republic of Kazakhstan).

LUKOIL Overseas has accrued this right as a co-owner of Turgai Petroleum in accordance with the Shareholders Agreement as a result of a transaction under which the Chinese National Petroleum Corporation (CNPC) acquired 100% of PetroKazakhstan Inc. with 50% share in Turgai Petroleum being one of its large assets.

In accordance with the Shareholders Agreement, in case of change of control over the asset by one of the shareholders, the other shareholder has the right to acquire the shares. However, in violation of the Shareholders Agreement it was not proposed to LUKOIL Overseas to bring into effect its pre-emptive right before the purchase of PetroKazakhstan Inc.'s shares by CNPC - and it became one of the justifications for the abovementioned arbitration.

This claim has been under consideration by the Arbitration Institute of the Stockholm Chamber of Commerce since July 2004. International legal firm Baker & McKenzie represented LUKOIL Overseas in these proceedings. The arbitration decision is final.

LUKOIL Overseas intends to bring into effect its right for the purchase 50% share in Turgai Petroleum in the nearest future. In case of CNPC and LUKOIL Overseas will not be able to negotiate the price, the price will be defined by the independent expert, that should be approved by the both sides, or appointed by the Stockholm Arbitration.

Since 1995 Turgai Petroleum has been developing a large field, Kumkol, in the Kyzylorda Region of Kazakhstan. Remaining proven reserves of the license area amount to 177 million barrels of oil. More than 3 million tons of oil were produced by Turgai Petroleum in 2005.

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