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Thursday, March 31, 2005

Russia's Putin Supports Gas Price Liberalization

31.03.2005 11:40 MSK MosNews - Russia's President Vladimir Putin has asked Prime Minister Mikhail Fradkov and Industry Minister Viktor Khristenko to prepare the drafts of government decrees that will abolish state regulation of natural gas prices, business daily Vedomosti reported on Wednesday, March 30. If the decree is signed into force this year, at the beginning of 2006 Russia's natural gas monopoly Gazprom will liberalize prices and sell its gas at market prices. As MosNews reported last week, the head of Gazprom, Alexei Miller, came up with a suggestion to abolish state regulation of natural gas prices for industrial consumers. He believes that industrial users should buy gas at a special stock exchange, while the government can still regulate gas tariffs for the housing and utilities complex, schools, hospitals and general population. Industrial consumers make up 70 percent of Gazprom's total domestic sales. The average price of natural gas sold to these users in 2004 amounted to $36 per 1,000 cubic meters. Natural gas that was sold by Gazprom for market prices cost up to 1.5 times more, experts said. Economists say that if the liberalization plan is realized, the price of gas may double, and this will have a negative affect on the profitability of the power generation, petrochemistry and metallurgy sectors. It should also be noted that Gazprom has been making profits from selling gas to industrial consumers for two years now which is another argument against price liberalization. Meanwhile, Prime Minister Mikhail Fradkov has already given his approval to Miller's initiative, saying that it is a move "in the right direction". But Economy Minister German Gref and Industry Minister Viktor Khristenko have both spoken out against Miller's suggestion.

Wednesday, March 30, 2005

Sibneft wins auction for licenses on two fields in Khanty-Mansi area

29.03.2005SKRIN News -  On March 28, 2005 Sibneft has won an open auction for the rights to develop the Salymskiy-2 and Salymskiy-3 blocks in the Khanty-Mansi Autonomous Area of western Siberia, Sibneft said in a press-release. Sibneft agreed to pay RUR200.34mln ($7.23 mln at today's exchange rate) or $0.04 per barrel for the Salymskiy-3 block, which has estimated recoverable oil resources of 23.42 mln tons. The company will pay RUR342.77mln ($12.37 mln) or $0.06 per barrel for Salymskiy-2, which has recoverable oil resources of 25.94 mln tons. Under the terms of the auction, Sibneft will receive exploration licenses for the blocks for a period of five years, with a guaranteed option to later obtain production licenses for the fields. "Sibneft is continuously seeking ways to expand its resource base," said Sibneft president Eugene Shvidler. "This process involves reviewing opportunities to participate in license auctions, as well as evaluating potential acquisitions of petroleum assets."

Monday, March 28, 2005

Russia’s Sibneft Wins Tender for 2 Siberian Oil Fields

Image by MosNews.com28.03.2005 14:52 MSK MosNews - Russian oil firm Sibneft said on Monday it had won an auction for two oil fields in the Khanty-Mansiisk region of Western Siberia, with oil reserves of almost 50 million tonnes (365 million barrels), the Reuters news agency reports. Sibneft said in a statement it had paid a total of 543.11 million rubles ($19.61 million) for the rights to blocks 2 and 3 of the Salym field, a price of $0.06 and $0.04 per barrel respectively. Salym-2 has estimated recoverable resources of 25.94 million tons while Salym-3 has 23.42 million tons. Under the auction terms, Sibneft can explore the fields for five years, with an option to continue to the production phase. Sibneft, Russia's No.5 oil producer, said in its 2003 results that it had 2,368 million barrels of proved crude reserves to SEC standards, or 4,623 million barrels to SPE standards.

Friday, March 25, 2005

Saving dwindling stocks

March 2005 Interfax news agency, Moscow -
The Russian government has decided to improve state control over the use of natural resources as oil stocks are dwindling and economic problems are looming large. The government has approved a draft law on the use of mineral resources which will replace existing licences with detailed contracts. Foreign companies are expected to register their entities and are banned from what are known as the six strategic deposits, the Russian agencies argued.
The Russian government has approved the draft federal law on mineral resources which envisages relying on domestic investors and restricting foreign participation in the use of natural resources, banning the investors from six strategically important deposits, Russian news agencies have said.
The document will be finalized by 17 April and then submitted to the State Duma, ITAR-TASS news agency quoted Prime Minister Mikhail Fradkov as saying.
Importance of resources
"The document is fairly well-written and clearly formulates proposals on using natural resources," Fradkov said.
He highlighted that importance of natural resources by saying "this is where our main resources for economic growth are at present. Setting the goal of diversifying the economy, we must understand that mineral resources will remain a source of wealth for us for many years to come," he said.
According to the agency, the government also focused on measures for running this year's spring sewing campaign smoothly. Fuel prices and the shortage of spare parts are expected to cause problems, the prime minister said, adding that "in fact, this boils down to insufficient attention to agriculture".
Privatization plans are "wishful thinking"
Fradkov also said he was not happy with privatization plans. "Our privatization plans quite often look great only on paper," he said, according to ITAR-TASS. Only two or three major projects come to fruition but most of them "are merely wishful thinking", he was quoted as saying.
Fradkov focused on the issue of taxing profits from using mineral resources. He said a decision should be made very quickly on levying differentiated taxes on the use of mineral resources, the agency said.
The agency quoted Deputy Prime Minister Aleksandr Zhukov as saying that the draft law is "a tremendous step forward in comparison with the existing law and will make it possible to gain more from using natural resources".
According to an Interfax report, Zhukov said that the tax on extracting mineral resources should be maintained for deposits that already exist, while a new system should be introduced for new deposits. This system should envisage contracts that would detail payments for using the resources.
Military view
RIA-Novosti news agency reported that Defence Minister Sergey Ivanov has asked the authors of the law to specify very clearly the procedure for prospecting resources on land that belongs to the Defence Ministry.
The minister said the ministry owns about 3m hectares of land, including land used as testing sites, and it is not interested in geologists exploring the lands without prior permission from the ministry, the agency said.
Details of new law
According to an ITAR-TASS report, Natural Resources Minister Yuriy Trutnev, who was presenting the draft law to the government, said that existing licensing practice would be replaced with signed contracts. He said the contracts could be cancelled only in three cases: in the event of missing the deadline to commission the deposit; failure to keep up with payments for using the resources; and no longer meeting the requirements of the tender previously won by the bidder. Trutnev went on to say that, in all other cases, economic sanctions will be used, the agency said.
Restrictions on foreign investors
He also said that restrictions would be introduced on the use of resources by companies in which the controlling interest belongs to foreign owners, the agency said.
"We do not intend to reduce the number of foreign companies investing in Russia but we suggest they should register their companies in Russia," the agency quoted Trutnev as saying. He also said that "it is planned to close foreign companies' access to developing strategically important deposits", the agency said.
According to Trutnev, in 2005 there will be only six such deposits, the agency said. He also said that this restriction would be in place only until 2007. "In 2006 the list will be reduced to two or three deposits and by 2007-2008 we will have nothing to add to the list as there will be no major prospected strategic deposits left," the minister said, according to the agency.
Of the six deposits, Udokan is high on the agenda, Interfax recalled at 0803 gmt. Trutnev was quoted as backing regional heads who oppose foreign investment in the deposit. "Udokan means raw copper which can be exported abroad as ore but it can be used as the basis for domestic industry," Trutnev said.
He added that there is enough capital in Russia to develop deposits without inviting in any foreigners, the agency said.
Trutnev added that there are 29 kinds of strategically important minerals, primarily precious stones, precious metals and some types of hydrocarbons, and that the "high level of monopolization of some specific segments of the market infringes on government interests", the agency said.
Sea shelf deposits
Trutnev said that the development of shelf deposits should be stepped up. "Shelf deposits contain about 23-25bn tonnes of potential fuel and work should be stepped up to extract it," the agency quoted him as saying. He added that about R2,500bn are needed as investment in Russia's mineral and raw materials industry.
The agency quoted him as saying that that there are plans to "ensure full restoration of mineral resources development levels" by 2020. He said this means Russia has enough oil to provide for its needs until 2015 but the government is hoping that by 2020 the level of stocks will be back on a par with that of 2003 which will mean full restoration, the agency said.

Russian Oil Companies Failed to Replace Reserves in 2004

Photo: veer.com25.03.2005 16:45 MSK MosNews - Russian oil companies once again failed to achieve full oil reserve replacement in 2004, with newly discovered deposits representing only 72 percent of the total output, Sergei Fyodorov, an official with the Russian Natural Resources Ministry said on Friday, March 25. Fyodorov said that Russia added only 330 million tons (2.4 billion barrels) in new reserves against 2004 output of 458 million tons. He also said that between 1999 and 2003 reserve replacement ran at 85 percent of output. Russian oil output has risen by more than 50 percent since 1999 to over 9.3 million barrels per day and represented the bulk of new oil coming from outside the oil cartel OPEC. Growth has slowed in the past months due to several factors such as the Kremlin's dismemberment of oil major Yukos, export bottlenecks, higher taxes and the lack of new easily recoverable reserves. Analysts say future growth depends on how the country taps new deposits outside its key producing region in West Siberia in places such as East Siberia, the Arctic shelf, Sakhalin Island, the northern Timan Pechora region and the Caspian Sea. Russia has the world's seventh largest oil reserves of 69 billion barrels, according to BP's statistical review, but many analysts believe they may become much larger after more exploration. Some analysts, quoted by Reuters, say with the addition of reserves in new provinces Russia could outpace Iran, which has the world's second largest reserves of 131 billion barrels, and beat all but Saudi Arabia with its unmatched 263 billion barrels. Russian exploration should increase if parliament passes a new law this year on subsoil use, which would give firms that strike oil the right to develop the deposit, adding a major incentive to invest in exploration. Under the current law, the state can re-offer the deposit at a production rights auction even if the exploration license holder invested millions of dollars in the field.


MOSCOW, March 25 (RIA Novosti) - In 2005, an increment in oil and gas condensate reserves will constitute some 330 million metric tons accounting for 70% of the volume written into Russia's energy strategy (455 million metric tons), said Sergei Fyodorov, director of the department of state policy and regulation in the sphere of mineral resource management of the ministry of natural resources, at a round-table on "State Regulation of Rational Mineral Resource Management" held Friday. In his words, the most serious problem today is "a fast shrinking of the mineral raw materials base because of poorly organized geological prospecting operations." He pointed out that oil and gas reserves in the Volga-Urals and Western-Siberian regions were running out faster than others. "The main problem negatively affecting the state of our mineral raw materials base today is the decreasing coefficient of oil extraction," Sergei Fyodorov said. Whereas at the end of the 1980s this indicator was 50%, "today is does not exceed 30% by expert estimates," he continued. In his opinion, in order to get the needed increment in oil and gas condensate reserves, it is necessary to increase spending on geological prospecting operations. The ministry of natural resources has drafted a program of long-term exploration and reproduction of the mineral raw materials base on the basis of a balance between consumption and reproduction of mineral resources. In Sergei Fyodorov's words, during the implementation of this program expenditure on geological prospecting operations should increase in proportion to the increase in the projected cost of an increment in reserves with regard to one ton of hydrocarbon fuel, i.e., 70 rubles in the 2005-2010 period, 92 rubles in the 2011-2015 period, and 118 rubles in the 2016-2020 period ($1 equals 27.70 rubles). In his words, the bulk of the funds will go to the regions of Western and Eastern Siberia till 2010. In the 2006-2010 period, over 101 billion rubles will be spent on geological prospecting operations in the West-Siberian oil and gas bearing province, and over 107 billion rubles - in the East-Siberian province. "It is obvious that we cannot do without the development of Russian shelf deposits in future," Sergei Fyodorov stressed. In his words, should the Russian energy strategy for the period up to the year 2020 be implemented, the expected oil production on Russian sea shelves will reach 30 million metric tons in 2010 and 95 million metric tons in 2020, and gas production - 90 billion cubic meters in 2010, and 320 billion cubic meters in 2020.


MOSCOW, March 25 (RIA Novosti) - In 2004 the total sum of investments in Russia's oil refining sector amounted to 29.2 billion rubles (just over $1 billion), head of the Federal Energy Agency (Rosenergo) Sergei Oganesyan stated in the speech he made in the course of the Round Table meeting Oil and Oil Products of Russia: Export Potential, Investments and Innovations. According to Mr. Oganesyan, the investments in Russia's oil refining sector must run into 131 billion rubles by 2010. The head of Rosenergo noted that last year the volume of oil refining at Russia's oil refineries reached 195 million metric tons, the installed capacities amounting to 263 million metric tons. The volume of oil refining in 2005 is expected at the level of 197 million metric tons. Mr. Oganesyan noted that on the whole all Russian oil companies, except for Bashneft, boast a growth of output. Speaking of oil export, he recalled that in 2004 Russian oil export ran into 189 million metric tons, and must amount to 332 million metric tons within the Energy Strategy by the year of 2020. Mr. Oganesyan specially stressed that "no small financial resources" will be needed for the development of transport infrastructure, and recalled that it is envisaged to develop the capacity of the Baltic Pipeline System to 60 million metric tons. He recalled that, besides that, a very important decision on beginning the construction of the Taishet (Eastern Siberia) - Nakhodka (100 km east of Vladivostok on the Sea of Japan) had been taken. "A decision to build the oil pipeline Western Siberia - Barents Sea coast is expected to be taken in the immediate future," Mr. Oganesyan said. Speaking of the construction of the Burgas-Alexandroupolis oil pipeline with the participation of Bulgaria and Greece, Mr. Oganesyan said, "The talks are continuing here." At the same time he noted that this oil conduit is the direction round the Black Sea Straits, which is the most acceptable for Russia. The Rosenergo head also noted that it is necessary to adopt a number of laws, which would establish "the rules of play for oil workers and which would not change" (a law on oil and gas, on concessions). Mr. Oganesyan stressed the importance of adopting the law On Mineral Resources. "We hope that it will be submitted to the State Duma shortly. There are very many positive elements in it, in spite of criticism," the official said.

Wednesday, March 23, 2005

Lukoil to Invest $200M in Production of High Octane Fuel

Photo: Lukoil23.03.2005 17:36 MSK MosNews - Russian oil major Lukoil has announced on Wednesday, March 23, that it will invest $200 million in production of high octane fuel at its Volgograd refinery in the Volga federal district. The information was announced by Lukoil's CEO Vagit Alekperov, quoted by Interfax agency. The oil company's official said that the refinery plans to upgrade the quality of the fuels it produces by introducing catalytic reforming of gasoline in 2006, isomerisation of gasoline fractions in 2008 and a catalytic cracking. The Volgograd plant, one of Lukoil's four refineries in Russia, had a throughput of 8.96 million tons of oil (180,000 barrels a day) last year and produced 920,000 tons of gasoline, 2.47 million tons of gas oil and 1.52 million tons of fuel oil. On Wednesday, March 23, Lukoil has also announced that it spent $160 million on acquisition of two gas station networks in Finland. The acquisition deal was approved by the European Commission earlier this week.

Gov't may increase oil price estimate

03.23.2005 RBC News - The government's budget planning commission has deemed it expedient to increase the oil price estimate for 2005 to $39 per barrel, a government representative has told reporters after the commission's meeting, where economic development and trade minister German Gref announced the updated medium-term scenarios of Russia's social and economic development. The necessity of raising the oil price estimate is related to the situation on the world market. In accordance with 2005's budget, the oil price is estimated at $28 per barrel. However, on March 18, the economic development and trade ministry reported that corrections to the ministry's macroeconomic forecasts for this year would be based on an oil price estimate of $36 per barrel. Earlier the government commission suggested setting the average oil price estimate at $34 per barrel for the planning of 2006's budget. Additionally, the commission has considered different options for raising the "price limit," which determines the Stabilization Fund's parameters. The parameters of budget revenues, discussed with the economic development and trade ministry and the finance ministry, have been generally approved at the commission's meeting. These parameters are to be updated, depending on the data for the first quarter of 2005. The finance ministry has been assigned to provide a drafted budget plan for 2006-2008, reflecting the main aspects of the government's social and economic policies, within a week. In the meantime, the price of Brent oil has dropped below $54 per dollar for the first time over the past five trading days, today. Last time, the price was below that level as long ago as March 16, 2005, analysts noted. Light Sweet futures have so far been above $55 per barrel, but a decline in prices has become significant. The oil market trend mainly depends on two factors now: the forthcoming publication of the US Energy Department's report and profit taking. The rate increase by the US Federal Reserve has not had any direct effect on this market. The Federal Reserve's decision has only strengthened the dollar's positions on the world currency market. However, if this trend were continued, the interest of investment funds in speculative buys on the oil market would decrease, and this would facilitate a decline in oil prices in the future, analysts think.

LUKoil purchases shares of Finnish oil companies

RBC, 23.03.2005, Moscow 15:56:26.LUKoil has purchased shares of Finnish companies Oy Teboil Ab and Suomen Petrooli Oy for USD160m, LUKoil's press service has reported. LUKoil-Finland, belonging to LUKoil Group, has concluded purchase and sales agreements with Oy Teboil Ab and Suomen Petrooli Oy, and thereby obtained the right to sole ownership of the companies. The deal's main achievement is LUKoil's entry into the Finnish oil-product market. LUKoil proposes to gain extra profit from supplies of EN-590, ecofriendly fuel oil produced at the Perm Refinery, to Finland. Oy Teboil Ab and Suomen Petrooli Oy facilities will also permit LUKoil to raise residual oil and gas oil exports from the company's refineries located in Russia. The European Commission ratified the deal, for it concluded that the acquisition by the Russian company would not influence the competition in the European economic area considerably. Oy Teboil Ab and Suomen Petrooli Oy's principal activities lie in the management of a network of service stations.

Tuesday, March 22, 2005

Lukoil, Sibneft To Be Fined Heavily

18.03.2005 10:54 [] - The head of Russian Antimonopoly Service Igor Artemiyev in a panel session of the Russian Cabinet, held on Thursday, accused the national oil and gas majors LUKoil and Sibneft of arranging with other companies, what had led to simultaneous rise of petroleum prices in several regions at a time. According to the antimonopoly officer, the oil firms might be fined for the violation of antimonopoly legislation, investment company Unicom Partner informs. By the way, beleaguered oil firm Yukos paid such a fine of $2.5 mln worth in February. Pavel Danilov, the head of Analytical Department of Unicom Partner, noted that oil producers need severely to prove the feasibility of price increase and not to allow similar precedents to occur again. Otherwise, those companies, who have a significant petroleum market share, might face new fines. Now all the companies are rejecting to admit guilt.

Capital investments in Russia growing

RBC, 22.03.2005, Moscow 16:42:47.In February 2005, capital investments Russia grew by 7.8 percent to RUR172.3bn (around USD6.197bn), compared with February 2004. Simultaneously, the rate went up by 19 percent, compared with January 2005, the report of the Federal State Statistics Service (Rosstat) reads. In January-February 2005, capital investments rose by 7.4 percent against January-February 2004.

Monday, March 21, 2005


MOSCOW, March 21 (RIA Novosti) - The growth of oil and petroleum product prices has failed to stimulate the sector, head of the Ministry of Economic Development and Trade German Gref told a meeting held by the Russian President with government members. Reporting to the head of state on industrial output growth, Gref stressed that oil production and oil refining were the outsiders of growth in industrial sectors. German Gref also noted that he was concerned over the low investment dynamics (7.8%). "In the previous years, except 2003, investment grew by more than 10%. Speaking about the growth of industrial production, Gref said that industrial output had grown 5.1% in February year on year. As compared to January 2005, industrial production went up 0.3%, the minister said. Machine-building was in the lead. According to Gref, output in machine-building increased 24% in February 2005 year on year. "This is a good factor but machine-building cannot be called a locomotive of growth yet," Gref noted. He added that metallurgy and the electric power sector had also grown at the start of the year. The head of the Ministry of Economic Development and Trade said that it was yet difficult to assess the influence of the lower uniform social tax because calculations were based on old indices until March. However, German Gref promised that from March the influence of the uniform social tax would be tracked.

Thursday, March 17, 2005

Russia to Ban Foreigners at Oil Auctions to Safeguard Depleting Resources

Photo: CI16.03.2005 18:31 MSK MosNews - Economically feasible and profitable reserves of oil in Russia will be exhausted by 2015-2017, the deputy head of the Russian Natural Resources Ministry, Anatoly Temkin, said on Wednesday, March 16. Temkin was presenting the new version of the law on subsoil use to reporters. The draft law is going to be discussed by the Russian Cabinet on Thursday. "The law will close the legislative gap that left us with no means of controlling reproduction [of oil] and rational usage of subsoil deposits," the deputy minister said. Among the new suggestions in the law are a ban on foreign companies from new tenders for the development of strategically important deposits, abandoning licensing practices and a transition to a contract basis when exploiting subsoil deposits. Temkin stressed, however, that "there is no reason to worry about foreign companies that are already developing Russian deposits — the law won't have a retroactive effect".

LUKoil and Sibneft likely to be fined

 RBC, 17.03.2005, Moscow 15:26:07.LUKoil and Sibneft are likely to be fined for their cartel agreements in the regions, Igor Artemyev, federal antimonopoly service chief, has stated today at a government meeting. He mentioned that a criminal case had been opened against LUKoil in the Stavropol region, and one against Sibneft in the Omsk region. Furthermore, Igor Artemyev observed that a case against YUKOS had been launched in the Krasnoyarsk region, where the company was fined USD2.5m for a cartel agreement. The antimonopoly chief believes LUKoil and Sibneft should also be fined. In early February, Artemyev stated that last year the antimonopoly service instituted more cases against oil companies that in the previous 5 years, and won a number of actions despite the difficulties of proving cartel agreements and concerted actions. Artemyev also pointed to the difference in penalties imposed on oil companies in Russia and abroad. He believes that if the Russian penalties were comparable to the European ones, an oil company could be fined USD250m for a one-time offence.


MOSCOW, March 17 (RIA Novosti) - Oil reserves in existing deposits will only last until 2015 in case reproduction of raw-material wealth ceases, Natural Resources Minister Yury Trutnev said at a government session Thursday. He noted that the program for the reproduction of raw-material resources, being worked out by the ministry, will make it possible to achieve the 2003 oil production level in 2020. Trutnev said the development of the shelf deposits would also considerably raise the level of oil production. "It is necessary to intensify work in the shelf areas. This will provide 23 to 25 billion tons of fuel equivalent," Trutnev said. He is also in favor of more active prospecting activity and developing new deposits. The reproduction of the basis will call for about 2.5 trillion rubles in the next 10-15 years, Trutnev told Finance Minister Alexei Kudrin. Trutnev believes that de-monopolization of the raw-material market in Russia would be made possible, not through redistribution, but through opening new deposits. "We have to create such a mechanism," he said. Trutnev said Russian investors have enough money to develop six strategic deposits in order to bar them for foreigners. Explaining why a decision has not been made on whether to allow non-residents to take part in auctions, Trutnev explained that this concerned the production of strategic raw materials that should not be exported as a non-processed type. "These raw materials should be used for the needs of the Russian Federation," he said. As an example, he spoke about the Udokan copper deposit in Southern Siberia that will be auctioned in 2005. Trutnev specified that in 2005 six auctions, out of 250, would be closed to foreigners, and in 2006 their number would be even smaller. He said there would be no auctions closed for foreigners in 2007-2008 because by that time no big prospected deposits will be left. Access to prospecting deposits remains open for non-residents, he added. "We do not propose cutting the number of foreign investors," Trutnev said. "We propose that foreign companies should be registered in the Russian Federation and function in accordance with its laws."

Wednesday, March 16, 2005

TNK-BP Caught in a Dilemma

03-16-2005 The Moscow News By Catherine Belton - British Petroleum's booming Russia venture TNK-BP is waiting on tenterhooks for a government decision that could determine whether the firm will be able to continue growing over the next decade. The Cabinet is due Thursday to consider a proposal made by Natural Resources Minister Yury Trutnev to prohibit foreign companies from bidding for licenses to develop strategically important fields. The proposal to bar access for companies with less than 51 percent Russian ownership is putting TNK-BP's long-term development plans in doubt. The company is 50-50 owned by BP and its Russian partners in Tyumen Oil and was formed largely in an attempt by BP to bid on new projects. To top things off, even as oil prices soar above $50, industry growth is expected to start a steep and extended slowdown this year, a big turnaround from the rapid growth rates of the last few years that have made Russia the fastest-growing oil patch in the world. The International Energy Agency forecasts Russia's growth in output to be just 3.8 percent this year amid growing export bottlenecks, increasing government control, a tougher tax environment and investor fears still emanating from the aftershocks of the government's takeover of the nation's biggest oil exporter, Yukos. The forecast puts production growth at less than half the average rate over the last five years and at the lowest since 1999, when oil prices were at $10. These factors have thrown BP and other foreign oil majors into an environment of uncertainty that is making some think twice about investing in Russia at all. TNK-BP CEO Robert Dudley, however, is sticking to his guns. He said he expected the company's production growth to fall back to 7 percent this year, still faster than the overall forecasted industry average but significantly lower than the double-digit growth it has posted since its landmark creation in February 2003. Its options for growth face severe restrictions over Trutnev's announcement. Dudley said TNK-BP had considered bidding for "a whole group in Timan Pechora," including several vast fields in the Far North region that contain nearly 200 million tons in oil reserves and were to be auctioned off early this year. But the auction was postponed this month while Trutnev's proposal finds its way into law. "While we're hopeful, we understand that it's the government's prerogative to just take further time until their own policy has been more clearly determined," Dudley said in a recent interview. If BP was any other oil company, it might just back away as U.S. oil giant ExxonMobil now appears to be doing. ExxonMobil was once a prime contender for taking a major slice of Yukos before its owners were thrown in jail and the company brought to its knees under nearly $28 billion in back taxes. "There's not a country in the world that we have to be in," Exxon president Rex Tillerson told an investor conference in New York last week, Interfax reported. The possibility of Exxon further expanding its activities in Russia is "foggy," Tillerson said. Russian officials "have not made it clear to us as a potential investor exactly how they want us to participate and under what terms." Asked whether Exxon was investing enough globally to increase output, company CEO Lee Raymond told the investor conference: "We think if we're going to continue to invest billions of dollars, we're not going to abandon our belief in the rule of law," Dow Jones reported. BP, however, has too much at stake to pull out. It put up $8 billion when it joined forces with Tyumen Oil in the largest foreign direct investment deal in Russia yet. It recently unveiled a restructuring plan that placed its value at $18.5 billion. TNK-BP's troubles start with the fact that most of its vast assets are in Soviet-era waterlogged fields. Ninety-two percent of the entire company's fluid output is water. "We like to call ourselves the biggest water company in Asia," Dudley joked during a Moscow investor conference late last week. While the company has a couple of new green fields such as the Uvat field, without access to major new projects, it is going to find it difficult to continue growth. "I think through the application of really sophisticated technologies we can continue this decade," Dudley said in the interview. "But after that, like all companies, we are going to have to transform ourselves through new projects." To that end, TNK-BP executives are engaging in tricky negotiations with government officials involved in formulating the new policy on license bids. They appear to have the backing of influential British officials. Former British Energy Minister Tim Eggar was in Moscow last week hoping to gain clarity during meetings with government officials on how changes to the subsoil law would affect British investors, including TNK-BP. "As an ex-British minister, I can accept that every country has the right to make its own decisions on its natural reserves," said Eggar, who is president of the Russo-British Chamber of Commerce. "Russia is not operating any differently from many other countries like Saudi Arabia. ... But clearly from the companies' point of view ... if they are not going to be able to invest on a level footing with Russian companies, it's a disappointment and a setback." He said current record-high oil prices would inevitably drop, and "if Russia is going to sustain oil production growth [when that happens], it's going to need very significant additional investments." "Russia would be mistaken if it believed that no matter what policies it pursued foreign oil companies will invest," he said. "They are not going to do that unless they are confident they are going to get an adequate return on their investment." A clue to a possible way out of TNK-BP's problem is the Sakhalin-5 bloc in the Far East, where BP is working in a new joint venture with state-owned oil firm Rosneft. The Russian side has a 51 percent stake in the project, which is separate from TNK-BP. "TNK-BP might have to seek to do deals with Rosneft like BP has in Sakhalin," said Stephen O'Sullivan, co-head of research at United Financial Group. "This could be the model. It might be the only way they get access. "But it's possible they will be only interested in fields that are so strategic that state-controlled Gazprom would want to keep them for itself," he said. Dudley, though, is holding out hope for a mechanism that will allow TNK-BP to make bids on Russian fields. "I think there's still a debate," he said. "The Russian Federation is a very big group, and the process that will lead to a consensus is still evolving." In the meantime, TNK-BP is also busy negotiating to make sure it keeps a project to develop the vast Kovykta field in East Siberia, a venture that BP CEO Lord Browne has called "the tomorrow" for TNK-BP. But the $18 billion export project has been stalled for years and looks likely to remain so amid a control dispute with state-controlled Gazprom. At the end of January, Trutnev said his ministry would make a decision on whether to revoke TNK-BP's rights to develop the field in two weeks. For now, Trutnev has let that deadline slip. "We continue to work with him and present our plans," Dudley said. "Talks have been very constructive. ... I think he understands the reality of this project and its importance. There is no magic deadline." Gazprom, too, appears to have toned down its rhetoric for the time being. Senior Gazprom officials last year publicly questioned whether TNK had legitimately won the rights to the field, but now they are locked in delicate negotiations over the company's merger with Rosneft. "Gazprom's attentions are right now focused elsewhere, and I think everyone realizes that," Dudley said. The state's growing tax take also appears to be starting to chafe. Last year, TNK-BP reaped an estimated net income of $4 billion, but it had to pay $6.5 billion in taxes, excise and customs duties. "It will be difficult to grow without tax regimes that allow [companies] to invest in projects that have a seven-year payback," Dudley said. And, as oil prices continue to soar, Dudley sees missed opportunity for Russia. "We could find that we look back at this time in history and find that Russia has missed out on this period of high oil prices because of bottlenecking [in export pipelines]," he said at the conference. The only major new route in the works -- a pipeline to the Pacific port of Nakhodka -- is not likely to be up and running this decade, he said. The problem, he said, has to be solved. "This is imperative for the country, not the company," he said.

Oil and gas producers to meet in Moscow

RBC, 16.03.2005, Moscow 09:22:03.The 4th congress of Russia's oil and gas producers will be held in Moscow today. Participants of the meeting are expected to discuss the performance results of the Union of oil and gas producers' council and set priorities for 2005 to 2006. Among the participants of the congress will be representatives of the Russian federal energy agency and oil and gas companies as well as deputies of the State Duma.


MOSCOW, March 16 (RIA Novosti) - A law on subsoil use would improve the situation in oil production, head of the Russian Federal Energy Agency Sergei Oganesyan said. "We are a step away from having a law on subsoil use adopted. Principal criticisms have been taken into account. I guess the law will be approved. This will allow an improvement in oil production," Mr. Oganesyan told the 6th congress of the Russian oil and gas industrialists. According to him, there is a lot of talk about letting foreign investors take part in developing the subsoil. "We should wait for a law that will make everything fall into place," Mr. Oganesyan said. He noted that the current law is "inefficient," although it is necessary for both foreign and domestic investors. He said Russia has not established a mechanism to supervise the implementation of the law. It is necessary to get back to the law on oil and gas. In addition, closer attention should be paid to the projects being run in Eastern Siberia and the Far East. A deal in the merger of Gazprom and Rosneft has been made. "An arrangement has been made. Most probably, it is going to be what has been voiced by Gazprom's CEO Aleksei Miller," Mr. Oganesyan told the media off-stage, specifying that he was not "involved in the process." Industry and Energy Minister Viktor Khristenko said Monday that the joint Gazprom and Rosneft asset consolidation plan had been completed. "The plan is designed for principal procedures to be completed come June," Mr. Khristenko told the media, adding that the joint plan had been approved by the Russian Property Committee, Economy Development and Trade Ministry, Industry and Energy Ministry, Gazprom and Rosneft. Mr. Oganesyan, a member of Rosneft's board of directors, said that the board had no plans to discuss the company's 2005 financial plans Wednesday. According to him, the matter was put off until a final decision on the terms of the Gazprom and Rosneft merger has been made. On Wednesday, the board plans to approve Rosneft's 2004 dividends to the tune of 1.5 billion rubles ($1=27.49 rubbles), Mr. Oganesyan said, noting incremental changes in the energy-related cooperation between Russia and Iraq. "There are changes, but it is hard to say so far what the volume of work is going to be. The situation remains complicated," he said. "Mainly LUKOIL has been positioning itself in Iraq." Mr. Oganesyan also spoke about the results yielded by his recent trip to Saudi Arabia. The parties agreed to convene the intergovernmental legal commission to discuss their bilateral cooperation.


MOSCOW, March 16 (RIA Novosti) - The president of Russia's Union of Oil and Gas Industrialists has called for developing new deposits. If the government and the public do not change their attitude to the fuel and energy sector as a lifesaver that does not need investment and modernization, Russia will not be able to export oil soon, and oil will only be used for domestic consumption, union president Gennady Shmal said at the union's 6th congress. "The only way out is a major geological survey and the development of new oil fields, including unique ones like Samotlor (Western Siberia)," Mr. Shmal said. According to Mr. Shmal, Western Siberian fields will be the most important in the next 15-20 years. Developing oil fields in Eastern Siberia and the Far East will help ensure the country's strategic security, energy supply, economic development and geopolitical objectives, he said. Exporting oil from fields in Sakhalin and building a pipeline towards the Pacific coast are the immediate objectives for the country in the oil and gas sphere. Mr. Shmal said about a quarter of oil wells had been idle in Russia. For example, 12% of Surgutneftegaz's wells, 19% of LUKoil's, 30% of Yukos', 38.7% of TNK's and 56.5% of Sibneft's are idle. Amending the current law and adopting a law that will encourage oil production at low productivity fields will help resolve the problem, he said. Mr. Shmal also urged a solution to the problem of financing geological prospecting. "This issue has not been settled yet. It is not clear whether a centralized source will provide financing or this will only be oil and gas companies' prerogative," he said, noting legislation on production sharing agreements needs improvement. A balance of interests needs a better legislative foundation to ensure the state's strategic interests and guarantees to investors so that companies will boost investment in geological survey, he said.

Monday, March 14, 2005

Shell Dismisses Report of Swapping Sakhalin-2 Shares with Gazprom

Shell logo14.03.2005 15:12 MSK MosNews - Oil giant Shell has dismissed media reports that it has agreed to swap a seven percent stake in the Sakhalin-2 oil and gas project in Russia's Far East for the interest in Gazprom's vast Shtokman Arctic gas field. The report was published in the British Observer on Sunday, March 13. The report quoted unnamed sources as saying that Shell was "prepared to consider a modest dilution" of its 55 percent stake in Sakhalin-2, possibly by as much as seven percent, which in turn could cost it control of the project. Shell spokesman in Moscow said on Monday, March 14, that the firm was interested in gaining a holding in Shtokman, one of the world's biggest gas deposits, but was still in talks with various parties and had not come to any final agreement. "We would not comment on any numbers that are being speculated about. Our policy is not to comment on speculation," he said, quoted by Reuters. Russia's natural gas monopoly Gazprom has said it wants to find a partner by mid-2005 to exploit Shtokman, which contains 3.2 trillion cubic meters of gas and 31 million tons of condensate, and build a liquefied natural gas plant. Gazprom is inexperienced at dealing with LNG, which repays massive investment by solving the problem of how to move the fuel around. When supercooled and shipped at minus 269 degrees Fahrenheit (minus 162 Celsius), the gas can tap global demand. Gazprom wants to market its first Shtokman LNG by 2011, with the plant processing 15 million tons per year in the first stage of development of the field, which lies around 600 km (370 miles) off Russia's northeastern coastline. Potential partners in the project include Norsk Hydro, Statoil, ConocoPhillips, ChevronTexaco and ExxonMobil. Gazprom has also said it wants to be involved in Sakhalin-2, putting pressure on Shell and its partners, Mitsui and Mitsubishi of Japan, which have 25 percent and 20 percent respectively. The $10 billion project, Russia's biggest ever foreign investment, plans to load its first LNG cargo in November 2007 and has already sold the bulk of its annual 9.6 million tons of LNG to Pacific markets.

Russia's Lukoil Reaches Agreement on $1Bln Oil Venture With Kazakhstan

Photo: lukoil.ru14.03.2005 14:09 MSK MosNews - Russian oil major Lukoil and Kazakh state oil firm KazMunaiGaz agreed on Monday to set up a venture to tap a Caspian offshore field, which will require $1 billion in investment, the Reuters news agency reports. The Khvolynskoye field is estimated to contain 322 billion cubic meters of gas and more than 50 million tons (367 million barrels) of oil and gas condensate reserves. "Today we are starting the actual implementation of the project. Total investment will amount to $1 billion," Lukoil 's President Vagit Alekperov told a news conference. He said commercial output at the field could be launched in 2010. Caspian neighbours Kazakhstan and Russia agreed in 2003 to work jointly on disputed oilfields in the oil-rich shallow sea. These deposits included Khvolynskoye, Tsentralnoye and Kurmangazy. Rosneft and Kazakhstan have been disputing the terms of the Kurmangazy venture for more than a year after Astana toughened rules on production sharing agreements and raised oil taxes. Rosneft has questioned the profitability of its project with KazMunaiGaz to develop the field with estimated reserves of between 700 million and one billion tons of crude and required investment of $10 billion. But on Monday, Kazakhstan's Energy Minister Vladimir Shkolnik said a deal on Kurmangazy should be also signed soon as the partners were close to reaching a compromise. He declined further comments. Kazakhstan holds huge reserves of hydrocarbons and relies heavily on foreigners to develop its natural wealth.

LUKoil creates joint venture with Kazakhstan

RBC, 14.03.2005, Moscow 11:55:17.LUKoil and KazMunayGas (Kazakhstan) have signed foundation documents for establishing a joint venture called the Caspian Oil and Gas Company. The venture will develop the Khvalynskoye deposit in the Caspian Sea, as well as transport and sell hydrocarbon materials. The venture has been established on a parity basis (fifty-fifty). As LUKoil President Vaghit Alekperov declared at the signing ceremony, this project, as all Kazakhstani projects, is a priority for the company. Investments in this project are estimated at more than $1bn.

Wednesday, March 09, 2005

Refineries Boost Output in '04

Wednesday, March 9, 2005 Reuters Dmitry Beliakov / bloomberg - Russian refineries processed 194 million tons of crude last year, up 3 percent. Russian refineries boosted light oil products output in 2004 due to bigger throughput, modernization and amid booming demand for high-octane gasoline while fuel oil production declined, new data from the Industry and Energy Ministry showed. Russian refineries processed 194.08 million tons of crude oil (3.89 million barrels per day) in 2004, or 3 percent more than in 2003, the ministry said. Gasoline production rose by 4.1 percent to 30.47 million tons, gas oil output increased by 3.1 percent to 55.40 million tons while fuel oil output fell 1.8 percent to 53.35 million tons. Sales by major foreign carmakers jumped by 80 percent in Russia in 2004 and could grow by another 40 percent in 2005 as the economy has been growing over the past five years. Russian carmakers are also switching to engines that run on high-octane gasoline, prompting refiners to implement costly upgrades. Russia boosted refining by 3 percent in 2004 mainly due to bigger runs at Nizhnekamsk, Ufa, LUKoil's Volgograd and Norsi, Surgut's Kirishi, Yukos' Syzran and Angarsk, Sibneft's Omsk, Slavneft's Yaroslavl and TNK-BP's Saratov and Ryazan units. Kirishi, near St. Petersburg, remained Russia's single biggest refinery, followed by Omsk in Siberia, Norsi in the Volga region and Yaroslavl. The biggest drop in refining volumes was on Rosneft's Komsomol plant and Ufimsk refinery. LUKoil's Ukhta also refined less crude as it sent more oil directly from the refinery to export markets by rail. The biggest boost in gasoline production in 2004 was on LUKoil's Norsi refinery, which produced 1.4 million tons or 13.5 percent more gasoline due to upgrades. Sibneft's Omsk, Russia's most modern refinery, remained the leader in gasoline production with output at 3.2 million tons, followed by TNK-BP's Ryazan, which enjoyed a large upgrade in the past years, with 2.4 million tons. Sibneft's Omsk remained the leader in gas oil production with output of 4.64 million tons, up 1 percent year-on-year, while decreasing fuel oil output by 4 percent to 2.07 million tons. Nizhnekamsk, Ufa and Novo-Ufimsk as well as TNK-BP's Ryazan and LUKoil's Perm also boosted gas oil production and cut fuel oil output. Surgut's Kirishi and LUKoil's Volgograd implemented a different strategy, boosting both gas oil and fuel oil output by 6.4 and 7.7 percent respectively.

Tatneft Says It Overstated Past Profits

Wednesday, March 9, 2005 Bloomberg - Tatneft, Russia's seventh-largest oil producer, said it overstated profit when it reported financial results for 2001, 2002 and the first six months of 2003 because of an accounting mistake. The mistake reduced Tatneft's expenditures as calculated under U.S. Generally Accepted Accounting Principles in the 2 1/2-year period by $144.3 million, causing a corresponding increase in net income, Tatneft said Saturday in a statement. The mistake was not connected to transactions questioned by auditors Ernst & Young that have delayed the release of Tatneft's full-year 2003 results. Tatneft will release corrected financial statements for 2001, 2002 and for the first and second halves of 2003 after independent legal consultants finish an investigation into the transactions questioned by Ernst & Young. The discovery of the mistake was not due to any tax investigation by authorities, Tatneft said.


NIIGATA (Japan), March 9 (RIA Novosti's Andrei Fesyun) -- There is a very promising forecast for ever wider minerals discoveries in Sakhalin. This conclusion has been made after the statement at the 2005 Russian-Japanese economic forum in Niigata, which opened Tuesday, by Yury Shchukin, director of the Sakhalin research and design oil and gas institute. He estimated the predicted hydrocarbon extraction at 1,900 million tons of oil and 3,300,000 million cubic meters of gas. At the same time, he indicated that prospects for the growth of oil resources in the Sakhalin region exceed the prospected part by several times and are connected chiefly with North Sakhalin's shelf. The parameters of some promising structures explored by seismic prospecting in the recent years enable the inference that the most spectacular discoveries in the Sakhalin shelf are still in the future: there are definite chances to discover unique oil deposits with the stock of some 300 million tons of oil and one trillion cubic meters of gas, according to Shchukin. The results reached and forecast speak of the feasibility of establishing a powerful oil and gas complex in inland and off-shore Sakhalin by the mid 2020s. Shchukin also reported about an annual quota of 50-60 million tons of oil and 65-85 billion cubic meters of gas to be extracted there. "These levels meet both the internal needs of the Far Eastern region of Russia and import requirements of neighboring countries," said Shchukin. The greatest hopes are pinned on the projects Sakhalin-3 and Sakhalin-5 which potentially surpass Sakhalin-1 and Sakhalin-2, said the Russian scientist.

Tuesday, March 01, 2005

Fitch: Houston Ruling Lowers Risk

March 1, 2005 Reuters LONDON - Investors in Russia's oil and gas sector are likely to see lower legal risks following the dismissal of oil company Yukos' bankruptcy case in a U.S. court last week, Fitch Ratings said in a statement on Monday. Yukos filed its claim for bankruptcy protection in a Houston court late last year, complaining it was the victim of a Russian government-orchestrated campaign to destroy it and former owner Mikhail Khodorkovsky, who is facing a 10-year prison term in Russia for fraud and tax evasion. The case was thrown out on Friday by the judge who said any dispute belonged in a Russian forum. Yukos quickly appealed the same day asking for a reconsideration of its case. "It seems clear from this recent court decision that foreign investors and banks now face less legal risk than before the decision," said Jeffrey Woodruff, a director at Fitch covering energy issues in Moscow. "We therefore expect creditors to be more comfortable going ahead with deals that might have been on the back burner until now." Yukos was fighting the auction of its main operating unit Yuganskneftegaz to help pay a multibillion dollar back tax bill. "For those companies and lenders directly involved in the Yuganskneftegaz transaction, last week's court ruling is seen as a credit positive event by Fitch as it prevents the legal dispute from spreading to international jurisdictions," Fitch said in its statement. "On the other hand, legal risks for other oil companies operating in Russia might be seen to have increased as the Russian government grows more confident that foreign entities will not meddle in domestic affairs, but Fitch does not hold this view at the present time," the statement said.

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