Russian Petroleum Investor

Download PDF of August 2010 Issue of Russian Petroleum Investor
02 Sep 2010

IN THIS ISSUE:

Ukraine Unveils an Alternative to South Stream
By Inna Gaiduk
The new Ukrainian authorities are not abandoning attempts to entice an end to the Russian South Stream project, a pipeline that could deprive Kiev of billions dollars in transit payments. In exchange, they are offering Moscow and Brussels the construction of a new gas pipeline in Ukraine and participation in the modernization of its gas transport system. The Ukrainian project consists in merging the Ukrainian Soyuz and Ananyev-Izmail gas pipelines with their extension up to Turkey and the subsequent connection with the gas transport system of European Union countries. On July 28, EU Energy Commissioner Gunther Oettinger declared that modernization of the Ukrainian GTS is a more promising business project than construction of Russian South Stream. Page 5

No Foreigners Needed for Yamal LNG
By Sergei Glazkov
On July 7, NOVATEK board chair Leonid Mikhelson made a sensational statement that the company does not consider it necessary to involve foreign partners in the Yamal LNG project, at least at the project preparation and investments decision phases. Two weeks earlier, the head of Gazprom Alexei Miller had told a press conference the opposite. Miller said that by the end of this year, Gazprom and NOVATEK will decide upon a “short list” of possible foreign partners interested in investing in Yamal LNG. Further, by the end of 2011 it will choose the partners. Such differences in opinions look odd, considering the cooperation agreement signed on June 18 defining the principles of joint activity between Gazprom and NOVATEK in the Yamal LNG project based on the huge Yuzhno-Tambeiskoye deposit. Page 12

Plans for Arctic Offshore Shipbuilding Accelerate
By Elena Kirillova
For Russia, a strategic priority is construction of drilling rigs and vessels able to work on the Arctic shelf. Russian authorities have completed creating the United Shipbuilding Corp. (USC) that will both engage in such construction as well as export-import transactions for vessel maintenance and all necessary equipment for developers of the northern shelf. USC has ambitious tasks. The corporation will also create ice-resistant drilling rigs for exploration and production of oil and gas and powerful gas carriers for transportation of raw material in Arctic conditions. Neither currently exists in the market. Page 7

The Fate of BP Assets and Russian Companies
By Ilya Kedrov
After a hasty visit to Moscow at the end of June by BP CEO Tony Hayward, rumors circulated about the future of the company’s Russian assets. It is clear that Hayward arrived in Moscow not to provide an update about the Gulf of Mexico oil leak but to answer rumors about the possible sale of a portion of BP assets. Hayward tried to convince officials and top managers of Russian companies that BP will not sell Russian assets. But it was not very convincing following information that BP has already used its Rosneft share holding as collateral for a bank line of credit. And it is highly unlikely that Russian companies will manage to acquire pieces of the British firm’s property, given the line of potential buyers already developing. Page 4

Oilfield Service Mergers and Acquisitions
By Elena Kirillova
Since spring of this year, Russian oilfield service (OFS) companies have been at the center of sector expert and analyst attention. In the beginning of March, the co-owner of oil trader Gunvor, Stroitransgaz and NOVATEK Gennady Timchenko through fund Volga Resources purchased a 25 percent stake in the largest exploration company Geotech Holding. Then transactions in the OFS sector increased, resulting by the summer in a wave of mergers and acquisitions. The objects of such activity were hardly small assets. Page 31

Trebs and Titov Auction to Occur in the Fourth Quarter
By Victoria Nezhina
In the first half of 2010, company activity was fairly low - the Federal Subsoil Use Agency (Rosnedra) was successful in selling off less than 29 percent of the blocks exposed at auction. That situation could certainly change with the competition on the Trebs and Titov deposits, which have remained in the undistributed fund of strategic deposits. The Ministry of Natural Resources and Ecology (MNRE) plans to put the deposits up for auction in the fall. Most likely, the license for both blocks will be realized in one package. Rosnedra has calculated an initial payment at R18.2 billion, while MNRE puts the figure at R60 billion (about $2 billion). Expected applicants include Rosneft, Gazprom Neft, LUKOIL, TNK-BP, Zarubezhneft, Bashneft and Surgutneftegaz. Page 6

Russian Companies and the Fiscal Authorities
By Sergei Glazkov
On August 16, LUKOIL concluded a 7.6 percent repurchase of its own shares from ConocoPhillips. By the end of 2011, the American company will sell its entire package back to LUKOIL in what will become the largest transaction in the Russian oil and gas sector since the sale of YUKOS assets. On the back of this news, LUKOIL share prices have grown. However, also on the background of sluggish trade during the summer, LUKOIL has become a market dominant. It has outperformed the former leader Rosneft. A principal cause of reducing stock value at Rosneft and the corresponding growth of LUKOIL are the actions of fiscal authorities in cancelling the zero export duty on Eastern Siberian oil, primarily at the Vankor deposit developed by Rosneft. Simultaneously, LUKOIL received approval from the Ministry of Finance on export duty incentives for its Caspian projects. That situation could change – the government intends to toughen the fiscal regime. Page 4

News Briefs, Page 47

Corporate Briefs, Page 48

Oil Production, Page 5

Gas Production, Page 59

Oil Refining, Page 65

Oil Export, Page 66

Oil Wells, Page 67

Drilling, Page 7

Capital Investment, Page 75

Subsoil Use Auctions, Page 77

Subsoil Use Auctions Forthcoming, Page 80

Merger and Acquisition Deals, Page 83

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