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. Last Updated: 07/27/2016

LUKoil Clinches $250 Million Azeri Deal

LUKoil, Russia’s No. 1 oil company, signed a $250 million production sharing agreement, with the Azerbaijan State Oil Co. to develop the Govsany and Zykh fields.

"We hope that this project will further develop economic links between Russia and Azerbaijan," said LUKoil president Vagit Alekperov in a statement. The agreement, signed Tuesday in the presence of both President Vladimir Putin and Azeri President Heidar Aliyev, calls for a 50-50 split on all crude extracted between the two companies.

The fields currently produce 1,825 barrels per day, and there are more than 182 million barrels in confirmed reserves. The fields have 15 oil wells.

The agreement is advantageous for LUKoil because it puts the company on good terms with Azerbaijan, which controls a majority of the Caspian’s crude oil reserves, said Renaissance Capital in a research note.

"Although small, the project could be very profitable, given the high well-flow rates," the note said.

The deal came during Putin’s visit to Azerbaijan. Putin has tried to exert influence on some former Soviet states, and his trip to Azerbaijan is the latest in a series of visits to Russia’s neighbors.

During the Soviet era, Moscow wielded power over the Caspian region, but Azerbaijan is fast developing an industry of its own, mostly outside of Russia’s influence.