Akin Gump Strauss Hauer & Feld and London law firm Herbert Smith will have helped to close the largest corporate deal in Russia if the Azerbaijani government agrees to the $1.4 billion sale of Lukoil's stake in one of the country's large oil fields.
The Russian company announced the sale of its 10% stake in the Azeri-Chirag-Gunashi project to the Japanese upstream oil and gas company Inpex on December 20 last year. If the deal is agreed by the Azerbaijani government through the State Oil Company of Azerbaijan (Socar), Inpex will take Lukoil's place as one of the 10 international companies that comprise the Azerbaijan International Operating Company (AIOC). The AIOC is developing the field, and produces around 140,000 barrels of oil a day. It is estimated that the group will have invested around $10 billion in the project by 2009.
The second phase of the Azeri-Chirag-Gunashi project was formerly approved by the in September and embraces the eastern and western flanks of the Caspian field, which comprises the Azeri, Chirag and Gunashi regions. Initially discovered and developed in the Soviet era, the oil field is thought to contain at least 5.2 billion barrels of recoverable oil.
Lukoil's decision may have been partly motivated by the company's close ties to the Russian government. Pulling out of Azeri-Chirag-Gunashi could slow down the US-supported Baku-Tblisi-Ceyhan pipeline, which the government in Moscow opposes because it would carry oil from Azerbaijan through Georgia to Turkish Mediterranean ports without using the more conventional route through Russia. Baku-Tblisi-Ceyhan could conceivably be extended to the vast oil fields of Kazakhstan, which would give US oil companies access to reserves in central Asia but undermine Russia's international influence.
The deal vindicates Herbert Smith's decision to poach banking partner John Balsdon from the Moscow office of Clifford Chance. At his old firm, Balsdon played a key role in closing the much-praised Blue Stream project which involved the financing and construction of a 760km gas pipeline under the Black Sea from Russia to Turkey. Only a few months after joining Herbert Smith Balsdon led the team advising Inpex, which also included London partners Alan Jowett and Paul Griffin and Tokyo partner Steve Lewis.
Akin Gump's Moscow partner Natalia Baratiants was in charge of the team advising the US firm's regular client Lukoil, with support from Houston-based partner Richard Wilkie and London corporate head Richard Hierons.
The companies concerned are now waiting for the decision of the Azerbaijani government which is expected to announce its decision through Socar within the next three months.