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Monday, October 31, 2005

Moody's upgrades ratings of nine banks in Russia

10-31-2005 RBC News - Moody's Investors Service has upgraded the global scale long- and short-term foreign currency deposit ratings of nine banks in Russia. The banks' outstanding senior and subordinated foreign currency debt ratings have also been upgraded. The outlook on all of these ratings is stable, the rating agency said on Friday. This rating action follows Moody's recent decision to upgrade Russia's foreign currency bank deposit ceilings to Baa2/Prime-2 from Ba1/Not-Prime. The following banks were affected by the upgrade: Sberbank: long- and short-term foreign currency deposit ratings upgraded to Baa2/Prime-2 from Ba1/Not Prime; foreign currency debt rating of senior unsecured debt upgraded to A2 from Baa2; foreign currency debt rating of subordinated loan participation notes upgraded to A3 from Baa2. Vneshtorgbank: long- and short-term foreign currency deposit ratings upgraded to Baa2/Prime-2 from Ba1/Not Prime; foreign currency debt rating of notes of all series of US dollar-denominated debt issuance programme of VTB Capital S.A. upgraded to A2 from Baa2; foreign currency debt rating of subordinated loan participation notes issued by VTB Capital S.A. upgraded to A3 from Baa2. Gazprombank: long- and short-term foreign currency deposit ratings upgraded to Baa2/Prime-2 from Ba1/Not Prime; foreign currency debt rating of loan participation notes issued by GPB Eurobond Finance Plc. upgraded to Baa1 from Baa2; EMTN Programme of Gazinvest Finance B.V. and medium-term notes issued by Gazinvest Luxembourg S.A. upgraded to Baa1 from Baa2. JSCB Bank of Moscow: Long- and short-term foreign currency deposit ratings upgraded to Baa2/Prime-2 from Ba1/Not Prime; foreign currency debt rating of all issues by Kuznetski Capital S.A. upgraded to Baa1 from Baa2. Russian Bank for Development: Long- and short-term foreign currency deposit ratings upgraded to Baa2/Prime-2 from Ba1/Not Prime; foreign currency debt rating of loan participation notes issued by RBD Capital S.A. upgraded to Baa2 from Baa3. Vnesheconombank: Long- and short-term foreign currency deposit ratings upgraded to Baa2/Prime-2 from Ba1/Not Prime. Russian Agricultural Bank: Long- and short-term foreign currency deposit ratings upgraded to Baa2/Prime-2 from Ba1/Not Prime. KMB-Bank: Long- and short-term foreign currency deposit ratings upgraded to Baa2/Prime-2 from Ba1/Not Prime. ZAO Raiffeisenbank Austria: Long- and short-term foreign currency deposit ratings upgraded to Baa2/Prime-2 from Ba1/Not Prime.

Shtokman gas field participants to be determined soon

RBC, 31.10.2005, Moscow 11:04:59.Participants in the Shtokman gas condensate field development project are to be defined no later than April 2006, Russia's industry and energy minister Viktor Khristenko has said today at the 5th Oil and Gas Week in Moscow. He noted that before the end of 2006, all calculations must be drawn up allowing certain investment decisions to be made. As for Russian-US cooperation in energy supplies, Khristenko reiterated that in early September 2005 Gazprom sent the first liquefied natural gas delivery to North America, and on October 1 the Sakhalin-1 project, in which US companies are participating, started to yield oil. Khristenko also stated that the share of Russian oil and oil products on the US market had increased almost twofold, yet it now accounts for only 4 percent of the US market.

Friday, October 28, 2005

Russia to miss out on higher investment rating

10-27-2005 RBC News - In view of high political risks and with the 2007-2008 elections in sight, rating agencies could be unwilling to upgrade Russia to the next grade of investment rating Earlier this week, Moody's Investors Service raised Russia's foreign-currency country ceiling for bonds and the foreign- and local-currency rating of Russia's government bonds to Baa2 from Baa3. Markets did not react to the news, but many investors were disappointed as they had hoped for a more significant upgrade. Analysts are full of optimism, saying that Russia's macroeconomic figures enable it to claim a better position in international rankings. In fact, returns on Russian bonds already correspond to level "A" on global rating lists. Experts are making conflicting forecasts. On the one hand, they do not rule out the possibility of further upgrades by two or three notches this year and next. But on the other hand this "bright future" is subject to political risks. With Russia's parliamentary and presidential elections due in 2007 and 2008, more conservative rating services might leave Russia in its present position - in the lowest investment-grade category. In addition to Russia's rising oil revenues, the rating upgrades reflect the country's prudent fiscal policies, stable politics, and an exhibited commitment to pay — and in some cases, pre-pay — outstanding debt, said Moody's, adding that Russia's liquidity and debt ratios have improved dramatically in a relatively short period of time. Although fiscal policies have loosened in 2005 and may well be marginally looser in 2006, Russia should continue to experience no difficulty in making timely debt payments over the next three to five years, even in the unlikely event of a significant downward correction in commodity prices, the agency said. The key challenges facing the Russian government include a need to increase competition throughout the economy; to improve Russia's fiscal federalism and the state's capacity for economic regulation and service provision; and to improve the judicial system and combat corruption, the agency said. At first glance, all of Russia's ratings hinge on oil prices: if oil prices are not high, Russia will be ranked low. Experts agree, to a point. "The correlation is indirect. Had it not been for high oil prices, there would be no early debt payments and a fine budget execution," Alexei Vorobyov, chief analyst at Maxwell Capital financial group, told RBC Daily. "The main parameters taken into account by rating agencies are budget, balance of payments, debt burden and inflation," he added. Some countries with similar economic structures are ranked higher than Russia. "In all countries, the rating depends on something. Among A-list countries, many are heavily dependent on this or that source of revenue. Russia's economy looks more diversified than that of the A-ranked Bahrain," said Denis Matafonov, at Antanta Capital investment company. "Currently, Russia is in the lowest investment-grade category on the lists of the world's three leading rating agencies – Fitch, Standard & Poor's and Moody's. Fitch and Moody's had upgraded Russia by one notch but S&P is not in a hurry to upgrade Russia from the lowest investment-grade ranking. "S&P is the most conservative agency of the three. It also considers political risks, and its statements are more critical," Vorobyov said. But experts say Russia has in fact surpassed its ratings, and could well claim a position in the next investment-grade group, alongside Israel, China and Poland. "In terms of macroeconomic results, Russia confirms its ratings. But by some indicators, such as debt burden, the country corresponds to higher ratings. By debt burden, Russia should be ranked two notches higher, A3 on Moody's list or A- on S&P's ranking," Vorobyov said. Market operators agree and rate Russian stocks accordingly. "In reality, Russia is ranked higher already, for example rated by bond returns and macroeconomic indicators. Moody's is simply catching up with the market," says Denis Matafonov, noting that the spread between returns on Russia's Eurobonds and US treasury bonds was about 150 basis points. Clearly, Russia is closer to ‘mature' countries. "For Mexico, which is ranked "A", the spread is 190 points, the same for A-rated South Africa. For Turkey, ranked "BB", one notch below Russia, the spread is 329 points," he said. It is no surprise that the upgrades left markets unimpressed. "The move was expected, and it hardly had any effect on Russian stocks and bonds," Matafonov says. Vorobyov agrees. "The latest upgrades had been expected, and they are unlikely to affect foreign investors' attitude towards Russia. Stock markets are disappointed: there were rumors that Moody's would raise Russia's rating by two or more notches," he said. Russia's rating will have greater significance for the market when it rises above Baa, Matafonov believes. He hopes Russia might see further upgrades before the end of the year, and the country could be promoted to the desired "A" category next year. "Given the Russian economy's strong dependence on political factors and with elections in sight, rating agencies may not be willing to upgrade Russia to the next category," Vorobyov said. Though some less conservative agencies - Moody's for a start - may do just that. "If this happens, Russia could be upgraded to the "A" category before December 2007, that is, before the elections," Vorobyov reasons. S&P analysts do not comment on possible rating upgrades but they admit that politics could play a vital role in rating decisions. "One of the key contradictions is the combination of high liquidity on the one hand and rather high institutional and political risks on the other hand," Alexei Novikov, analytical director of S&P's Moscow office, told RBC Daily. "These are two key factors determining our opinion on Russia's credit worthiness. It is on them that the rating will depend," he added.

Thursday, October 27, 2005

LUKoil eyeing construction of Caspian gas & chemical complex

RBC, 27.10.2005, Moscow 15:53:10.Kazakhstani Prime Minister Danial Akhmetov has met LUKoil president Vagit Alekperov in Moscow today to discuss cooperation prospects. Alekperov presented LUKoil's project regarding the construction of a gas chemical complex in the Caspian region. Akhmetov considers this project to be beneficial both for Kazakhstan and LUKoil. The capacity of the complex is estimated at 14bn cubic meters of gas. Capital investments in the project will amount to USD3.6-3.8bn, Alekperov stated. LUKoil will make a definite decision on the project in 2006, Alekperov concluded.

Tatneft consolidates its shares in Bank Zenit

MOSCOW, October 27 (RIA Novosti) - Russian oil major Tatneft said Thursday its board had made a decision to buy 40% of an additional-shares issue of top-20 ranked Russian bank Bank Zenit. The board also reviewed 9M05 company results, along with the progress on the construction of an industrial complex, including refineries and petrochemical plants in Nizhnekamsk, Tatarstan, the company said in a statement. Tatneft increased its commodities production 14% in the first nine months of 2005 year on year to 11.6 billion rubles ($400 million), the company said. Tatneft, Russia's sixth largest oil producer and No. 32 in the world, is the largest oil company in Russia's Republic of Tatarstan in the Volga region, making up about 80% of the republic's oil output. Tatneft is the main shareholder in Bank Zenit.

Russia to Restrict Foreign Access to 5 Strategic Natural Resource Deposits

Natural Resources Minister Yuri Trutnev25.10.2005 11:07 MSK MosNews - On Monday, Oct. 24, Russia's Natural Resources Minister Yuri Trutnev named the five major natural resources whose access will be restricted for foreign companies. Trutnev was meeting with the president of the Confederation of British Industry John Sunderland and represenatives of major British companies. The Russian minister said that the "strategic" label won't be applied to those deposits that have already been tendered for development. In practice only five deposits fall under this category: the Titov and Trebs oil fields in the Yamalo-Nenets autonomous district in West Siberia, the Chayandinskoye oil and natural gas field in Yakutia, the Sukhoi Log gold deposit in the Irkutsk region and the Udokan copper deposits in the Chita region, in East Siberia. Yuri Trutnev also told the British businessmen that the new draft law on subsoil could be adopted in late 2005 or early 2006 and could come into force in the second half of 2006. He also informed them of amendments to the Tax Code which are being developed jointly with the Economy and Finance Ministries. The amendments concern the differentiation of severance tax. "The amendments presupposes a lowering of severance tax for deposits which are depleted by more than 85%, for hard-to-recover reserves of oil and gas, and for the development of new deposits in poorly explored territories, for example in East Siberia and on the continental shelf," a Natural Resources Ministry press statement, which was released after the meeting, said. Following the meeting, the head of the British delegation John Sunderland noted that the planned changes in Russian legislation "have a high potential for attracting foreign investments".

Wednesday, October 26, 2005

Russia invested over $1 billion in U.S. in 2005

MOSCOW, October 26 (RIA Novosti) - Russia has invested over $1 billion in the United States in 2005, the Russian Industry and Energy Ministry press service quoted the ministry's head Viktor Khristenko as saying at a Washington meeting with U.S. President George Bush. It is very significant that "Russian-American investment cooperation has long stopped being a one-way street," Khristenko said. "And if some people think it is a flight of capital from Russia, I am totally for such flight." The minister said such investments were a "logical" and "quite natural" consequence of the development of Russia's largest companies Severstal, Norilsk Nickel, and LUKoil. After the talks, Khristenko said the U.S. president had promised support from the U.S. administration in further developing bilateral investment cooperation.

Russia publishes list of protected resources

25.10.2005 Financial Times - Russia yesterday published a list of oil, gold and copper reserves which it considers strategic and which will be off limits for foreign investors. Analysts said the lists appeared to be shorter than had been feared and would allow foreign companies to bid for licences for all but the largest reserves. Yuri Trutnev, natural resources minister, said only three large oil and gas fields - one in eastern Siberia and two in the Timan-Pechora region - would be off limits to foreign companies. He earlier said this would apply to any company with foreign ownership over 50 per cent and could include TNK-BP, the Anglo-Russian oil venture. Mr Trutnev said the government would also restrict access to fields with reserves of more than 150m tonnes (1bn barrels) of oil and 1,000bn cu m of gas. Steven O'Sullivan, head of research at UFG, the Moscow investment bank, said it was not clear whether the government would impose any other criteria as well. Steven Dashevsky, oil and gas analyst at Aton Capital, a Moscow brokerage, said that this was good news for foreign energy companies. “This is a foreign investor friendly gesture by the state and means foreign companies will still be able to participate in auctions for very sizeable fields,” said Mr Dashevsky. Chris Weafer, chief strategist at Alfa Bank, said Russia had not auctioned any significant licences for natural resources for the past seven years. He argued that the decision to award new licences followed the centralisation of government control over oil and gas industry. In the past year the government tripled the size of Rosneft, its national oil company, and raised its stake in Gazprom, the gas monopoly, to 51 per cent. “One of the reason we are now seeing progress on long-outstanding issues such as award of licences is that the state itself now has the vehicles by which it itself can take a dominant role in those licences,” Mr Weafer said. The strategic list includes the Titov and Trebs oil fields in Timan-Pechora with oil reserves of 57m tonnes and 82m tonnes respectively, and the Chayandinskoe field in east Siberia with gas reserves of 1241bn cubic metres. The government also declared off limits the copper deposits of Udokan, which accounts for 40 per cent of all Russian reserves, and Sukhoi Log, Russia's biggest untapped gold deposit. The new law is expected to come into force in the second half of 2006. Mr O'Sullivan, said Gazprom was likely to be interested in the gas field, while Rosneft could be interested in the Timan-Pechora fields. For regional reports,

Tuesday, October 25, 2005

US Calls Russia For Consistency

25.10.2005 09:42 [] - The US asked Russia to clarify a proposed law that would limit foreign firms’ access to the Russia’s largest oil and natural gas deposits. U.S. Energy Secretary Sam Bodman said after meeting with Russian Energy Minister Victor Khristenko, “Our government would like to see the passage of the Russian subsoil law, which will clarify the rules and the laws for investment in the energy area.” Investors have said they were concerned the move could limit the growth potential in Russia of foreign players such as U.S. Exxon Mobil Corp. or BP Plc.’s 50/50 Russian venture, TNK-BP. International mining companies are also watching to see how they may be affected. Khristenko said the government is very close to issuing its proposal, and downplayed the impact of the new laws on foreign investment. “It’s a very lenient limitation,” he said, pointing out that it would only apply to a handful of large fields where foreign investors are not seeing majority stakes. Bodman did not criticize the proposal outright, but called for consistency in U.S.-Russia oil dealings. “Russia has been undergoing a process of change,” Bodman said. “That has made it a challenge for businesses in both countries to work out appropriate relationships.”

Money Focus: Russia-U.S. Energy dialogue

MOSCOW, October 25 (RIA Novosti commentator Peter Lavelle) - Industry and Energy Minister Viktor Khristenko is leading a delegation of Russian business leaders to the U.S. this week. Visiting the country for first time as minister, Khristenko's agenda includes broadening bilateral industrial relations and kick-starting the Russia-U.S. energy dialogue. Khristenko's high profile visit marks a significant improvement in the Russia-U.S. energy dialogue, which all but died after the start of the Yukos affair in 2003. Previously, Yukos had aggressively pushed for the construction of a million-barrel-a-day pipeline to an export terminal at Murmansk for later shipment to the American market. That project has been a dead letter for the past two and a half years, but Khristenko appears to have revived the idea. Recently he was quoted as saying that Russia would look to export crude from a Barents Sea port by 2009 and that this route could rise to around one million barrels a day. Members of the delegation include 12 company leaders, as well as the president of Rosneft and the vice chairman of Gazprom. Russia has concluded direct energy deals with almost all major energy-consuming countries except the US. Khristenko also told journalists that he expected Russia's oil output in 2005 to reach 478 million metric tons (an average of 9.6 million barrels a day), or up 4.2% on last year. This appears to be overly optimistic given that the most recent data for September shows an annual growth rate of little more than 2%.

Monday, October 24, 2005

Sibneft Would Find Home in St. Petersburg

Oct 20, 2005 Kommersant - The company would pay taxes to the Northern Capital In the nearest time the President and one of Sibneft's shareholders Evgeny Shvidler might announce about his resignation. One of the main contenders for the president's position of the company that goes under Gasprom is Alexander Ryazanov, Deputy Chairman of the gas monopoly . The new head of Sibneft will immediately get busy with transferring the company's registration from Omsk Region to St. Petersburg. The Ministry of finance is getting ready to compensate the budget losses to the region in the amount of 14 billion rubles. Yesterday, Gasprom's board of directors agreed to purchase two portfolios of Sibneft (72.663 percent from Millhouse Capital and 3.016 percent from Gasprombank). As Kommersant found out from the source, which is close to the board of directors, there was a credit line for $13.1 billion open in one of the Western banks and purchase of stock from the Millhouse Capital will happen very soon. The Gasprom itself will receive 56 percent of the Sibneft stock for $10.1 billion. Gasprom's affiliate in the Netherlands – Gazprom Finance BV will be a guarantor for the deal and will be putting 16 percent of Sibneft stocks ($3.3 billion worth) for an escrow account as a provision for the credit. According to the Kommersant source in one of the ministries, the deal would be considered finalized after Gasprom covers the bank credit with the money coming from the revenue of Rosneftegas by the end of this year. Yesterday Gasprom confirmed that the second payment of the state for the purchased in the summer 10.74 percent of the company stock (20.895 billion rubles or $727.5 million ) was received and together with the $565 million was sent to purchase Sibneft shares. In the mean time, Kommersant sources that are close to the Gasprom's board of directors said that today the gas monopoly will name a new head of Sibneft. "The President of Sibneft Evgeny Shvidler will leave his position in the next few days," the source, close to Millhouse, confirmed. "It is possible, that he will make an announcement already on Tuesday." Among the potential candidates for the Sibneft president's chair the experts point out Alisher Usmanov, head of Gasprominvestholding, Kirill Seleznev, General Director of Mezhregiongas, and Alexander Ryazanov, Deputy Chairman of Gasprom. However, Kommersant sources, who are familiar with the plans of Usmanov, say that he has no personal interest to the oil project and he might become the head of the company only "if the top would ask." In Mezhregiongas there are also doubts that Seleznev will change his job. The ministries directly connected with the oil and gas industry think that Ryazanov would be the most likely candidate. It was him making negotiations from the Gasprom side about technical details for Sibneft's purchase. Ryazanov is on vacation since October 14 and does not make any comments. "Let's wait till tomorrow," he told Kommersant. The source in Gasprom said that one of the priority task for the new Sibneft president would be registration of the company in St. Petersburg. "This will happen already in the next year," the source said. Omsk's officials already calculated that because of Sibneft's exit, the regional budget would lose about 14 billion rubles. "I raised the issue about the compensation for the region of lost income in amount 13.6 billion rubles in 2006 (overall the profitable part of the budget would amount to 28 billion rubles –Kommersant) during the work over the Federal Budget," Oleg Smolin, the Duma's Deputy from the Omsk Region, announced yesterday. "The First Deputy Minister of Finance Tatiana Golikova recognized that after the sale of Sibneft to Gasprom, it would be important for the regional budget to maintain the tax collecting base. The government has additional financial resources to compensate dropped out revenues at the region. We got agreed that this problem would be discussed with participation of regional finance ministry until the third budget reading, which is scheduled for Nov. 19." The Omsk Duma's Financial Committee Chairman Oleg Shishov confirmed that the "problem mostly resolved in the highest level." Let's note that the move of Sibneft to the motherland of President Putin and Gasprom's head Alexei Miller will allow the St. Petersburg's Governor Valentina Matvienko to pay out several years' worth of the state debt. By the end of this year this debt would amount to 16.21 billion rubles and by the end of the next year would exceed 20 billion rubles.

Sibur revenues up 24.5% in 9M05

MOSCOW, October 24 (RIA Novosti) - The Siberian-Ural Petrochemical and Gas Company (Sibur), Russia's leading petrochemical company, reported Monday that revenues in the first nine months of 2005 grew 24.5% year on year to $2.6 billion. Sibur's domestic sales grew 18% to $1.85 billion, and exports grew 36% to $780 million, with pre-tax profit totaling $580 million, a 64.2% year-on-year increase. Sibur, a major subsidiary of Russian natural gas monopoly Gazprom, is a vertically integrated holding that controls the country's entire gas-processing and gas-chemical industry, producing over 100 petrochemical products.

Khristenko goes to U.S. to discuss energy cooperation

MOSCOW, October 23 (RIA Novosti) - Russian Industry and Energy Minister Viktor Khristenko is going on a five-day working visit to the United States to discuss bilateral cooperation in the delivery of energy products, the Industry and Energy Ministry said in a statement Sunday. Khristenko will discuss projects to develop Russia's hydrocarbon transportation infrastructure and the prospects of delivering liquefied natural gas to the United States, the ministry said. Khristenko and the chief executives of Russian major companies will discuss the participation of U.S. investors in Russian projects and the situation on the global energy market. "Khristenko is expected to meet with the U.S. Secretary of Commerce and the heads of key departments of the U.S. industrial and energy sector," the ministry said. Khristenko will also meet with the heads of Conoco-Phillips, Chevron, Rouge Steel, Ford, General Motors and Boeing. Khristenko and the heads of the Russian auto giants AvtoVAZ and KamAZ and the steel maker Severstal will visit the U.S. major automobile and steel enterprises, and also a Boeing factory, which uses Russian-made components in its production.

Saturday, October 22, 2005

Five major natural deposits to be restricted for foreign companies

MOSCOW, October 20 (RIA Novosti) - The restrictions on the access of foreign companies to Russian natural deposits could only apply to five major deposits, the Russian Deputy Minister for Economic Development and Trade said Thursday. Andrei Sharanov said that Economic Development and Trade Minister German Gref told investors this week that access to five natural deposits, including two hydrocarbon deposits, would be restricted. "We consider a limited number of deposits where the access of foreign companies would be restricted," Sharanov said. He said it was still unclear in what way access would be limited.

Energy resources to dominate Russian minister's U.S. visit agenda

MOSCOW, October 20 (RIA Novosti) - Russian Industry and Energy Minister Viktor Khristenko will be visiting the United States on October 23-28 to discuss Russian energy resource supplies and projects to develop Russia's hydrocarbon transport infrastructure, and possible liquefied gas deliveries to the U.S. The Industry and Energy Ministry said in a statement Thursday that meetings in the U.S. would be attended by executives from major Russian companies on the participation of American investors in Russian projects and the situation on the global energy resources markets. "While in Washington, Viktor Khristenko is scheduled to meet with Commerce Secretary Carlos Gutierrez, members of the key departments of the U.S. energy and industrial sector, including Secretary of Energy Samuel Bodman, Chairman of the Senate Committee on Energy Pete Domenici and Chairman of the House Committee on Energy and Commerce Joe Barton," the ministry said. "The visit program includes meetings with the CEOs of ConocoPhillips, Chevron, Rouge Steel, Ford, General Motors, and Boeing." Khristenko and representatives of AvtoVAZ, Russia's leading automaker, the truck producer KamAZ and the steel producer Severstal are also expected to visit America's largest automotive and steel plants and, in the final phase of the trip, meet with top executives from Boeing, which uses Russian-made parts.

Thursday, October 13, 2005

Tatneft increases oil output 1.1% in 9 months

MOSCOW, October 12 (RIA Novosti) - Russian oil major Tatneft increased its oil output 1.1% in the first nine months of 2005 year on year to 19.059 million metric tons, the company's press office said Wednesday. Tatneft, located in Russia's Republic of Tatarstan in the Volga region, produces most of oil in the republic. In September, Tatarstan produced 2.542 million metric tons of oil, of which 2.006 million metric tons were produced by Tatneft. In January-September 2005, the company introduced 292 new wells, providing for 229,018 metric tons of oil output.

Russian presidential aide blasts Sibneft, Yugansk deals

MOSCOW, October 12 (RIA Novosti) - The Russian president's economic adviser sharply criticized Wednesday the two biggest deals in the country's corporate history. Andrei Illarionov, who is known for his critical views of government policy, slammed natural gas giant Gazprom's purchase of a 72.7% share in Sibneft, the country's fifth largest crude producer, and state-owned oil company Rosneft's acquisition of Yuganskneftegaz, the former core production of embattled major Yukos, at the end of 2004. "They are more than a crime - they are a mistake," he said. He added that instead of allowing state-controlled companies to take over formerly private companies, Russia should fully privatize the energy sector. He also proposed that the government lift the "ring fence" around the country's energy sector and infrastructure to allow greater foreign investment. Illarionov also criticized Economic Development and Trade Minister German Gref for his ambiguous position on the issue of state influence on the economy. Speaking at an economic forum in Sochi last month, Gref described the idea of the state playing a greater role in the economy as "neanderthal" and said it must be buried. But on October 11, his ministry supported Gazprom's purchase of Sibneft's stake.

Wednesday, October 12, 2005

Russian authorities against revising Sakhalin-II PSA

MOSCOW, October 11 (RIA Novosti) - The current production sharing agreement on the Sakhalin-II oil and natural gas project will not be revised, the deputy head of the Russian Federal Energy Agency said Tuesday. "The production sharing agreement (PSA) law will not be amended," Oleg Gordeyev said commenting on a request from the Sakhalin regional parliament to revise the terms of the agreement. "The request of the MPs may be taken into account in other PSA projects," he added. The legislature of the Sakhalin region in the Far East asked the Russian government to increase the royalties (payment for the right to use subsurface resources) payable to the budget. The Sakhalin-II PSA was signed in 1994 between the Russian party (the Russian government and the administration of the Sakhalin region) and the Sakhalin Energy Investment Company, which currently comprises Shell Sakhalin Holding (55%), Mitsui Sakhalin Development (25%) and Diamond Gas Sakhalin (20%). It was the first PSA to be signed in Russia and came into force in 1996. The Sakhalin-II project includes an oil field with some associated gas production, a natural gas field with associated condensate production, pipeline, a liquefied natural gas (LNG) plant, and an LNG export terminal. The total reserves of the two fields are 150 million metric tons of oil and 500 billion cubic meters of natural gas.

Annual oil production in Russia up 140 million tons in five years

MOSCOW, October 10 (RIA Novosti) - Oil production in Russia increased by 140 million metric tons in the last five years, aggregating 458 million metric tons, according to data announced Monday at the Russian parliament's lower house. State Duma deputies said the figures exceeded the most optimistic expectations of the energy strategy, but at the same time they said Russia formed a model of exhausting exploitation of natural deposits. "The miracle of increasing oil production with the exhausting deposits will not continue," said Elik Khalimov, an expert with the all-Russian Oil Scientific and Research Institute. Khalimov said the volume of explored oil deposits decreased by 20% from 1988 to 2005. He said investments in risky geological prospecting works had almost come to nothing and that federal and regional budgets did not allocate enough.

Thursday, October 06, 2005

Russia's Police to Count Wells

Open 10-06-2005 Kommersant - Russia's Internal Ministry and the Ministry of Nature are willing to create a register of existing and frozen oil wells in 2006 in a move to lessen unauthorized removal of crude.
The Interior Ministry's officials reasoned the register will enable them to control crude production and to spot product excess on the market. The desire of enforcement officers of Russia to count the wells stems from extension of the criminal component of that business. More than 7,000 related crimes have been revealed since early this year (vs. 8,000 crimes over the whole 2004) with the damages of billions of rubles. Among the most popular crimes are illegal processing of oil by refineries, contraband trading in petroleum and its stealing through unauthorized tie-ins coupled with petrol, diesel fuel and black oil stealing from railway cars and vessels. In addition, reduced volume of exported petroleum vs. the actual amount is a common practice now.
The enforcement officers, however, can boast of no global success so far. The best cases of investigators' activities are the action vs. Surgutnefteproduct managers, who had stolen 20,000 tons of petroleum from the government’s stock for a total worth of 35 million rubles, and the action vs. Tyumengazsnabkomplect director, who had stolen more than 9 million rubles derived from petrol/diesel fuel sales.

Wednesday, October 05, 2005

Russia's Oil Output Hits Post-Soviet High

Photo03.10.2005 15:42 MSK MosNews - Russian oil output resumed steady growth as it rose for a fourth straight month and added 40,000 barrels per day (bpd) in September to reach 9.53 million barrels per day, a new post Soviet high, Energy Ministry data showed on Monday, Oct. 3. Production grew 0.4 percent from August's 9.49 million barrels per day, which was the previous post Soviet record. Output was also 1.2 percent higher than the 9.42 million barrels per day produced in September 2004, when production begun to stagnate after years of explosive growth. Output averaged 9.38 million barrels per day between January-September 2005, up a mere 2.7 percent from a year earlier when it stood at 9.13 million barrels per day. Production grew by 9 percent in 2004 and by a record 11 percent in 2003. Analysts have blamed the collapse of oil major Yukos and high taxes for the stagnation in production growth, a factor that helped drive global prices higher. Production growth resumed in June 2005 after eight months of stagnation, prompting some analysts to say the doldrums were over and growth rates should improve from October. The government said this month it wanted to cut taxes to encourage exploration and development of new fields, sparking more optimism about output prospects. However, no concrete promises have been made, and moreover certain officials, such as Finance Minister Alexei Kudrin, have said that they see no need to decrease taxation in the oil production sector. Top producer Lukoil, No. 2 firm TNK-BP and state-owned Rosneft Oil Company were largely responsible for a boost in output in September, while production of the fallen firm Yukos was flat month-on-month after a long period of decline. Lukoil produced 1.77 million barrels per day as compared with 1.76 million in August, while TNK-BP, half owned by British Petroleum, ramped up production to a new high of 1.57 million barrels per day compared with 1.55 million in August and 1.47 million a year ago. Rosneft, which snapped up Yukos' main production unit Yuganskneftegaz at a forced state auction last year, pushed up production further to 1.53 million barrels per day compared with 1.51 million in August and 1.49 million in July 2005. Production at the remaining units of Yukos, Samaraneftegaz and Tomskneft, has likely bottomed in September after months of steep decline as they produced 435,000 barrels per day compared with 437,000 barrels per day in August and the some 600,000 barrels per day they were extracting last year. Russia's No 5 oil firm Sibneft showed the steepest decline after years of explosive growth confirming analysts' views that its shareholders, led by the owner of Chelsea soccer club, Roman Abramovich, have stopped investing in the company ahead of its sale to state natural gas monopoly Gazprom. The firm produced 656,000 barrels per day, flat month-on-month but down a record 7 percent from the 702,000 barrels per day it produced in September 2004. As MosNews has reported, Sibneft, which was one of the key driving forces behind Russian output growth in previous years, was sold in September by its owners to Gazprom for a $13.1 billion. On the export front, oil shipments via the trunk pipelines of state monopoly Transneft remained flat in September from August at 4.49 million barrels per day. Shipments fell from the Black Sea port of Novorossiisk due to stormy weather and steeply declined from Ukraine's Black Sea port of Yuzhny due to lighter scheduled loadings, but rose from Butinge on the Baltic Sea. The news of increased oil output comes as a pleasant surprise amid the gloomy forecasts that have been made in recent months by government officials and oil companies' heads alike. As early as last summer experts began to forecast a slackening in Russian oil production, saying that one of the main reasons for such an event would be the fact that oil companies are lagging behind in their exploration efforts. In the Soviet Union state oil and gas monopolies had to invest in geological exploration, and there were special institutes and geological expeditions set up for this purpose. But in recent years Russian oil companies have been putting all their profits into production. In order to prevent the depletion of current deposits, the oil producers really have to slow down their pumping efforts and concentrate on exploratory drilling, experts say.

Tuesday, October 04, 2005

Official says Russian tax system will ruin oil companies

ST. PETERSBURG, October 4 (RIA Novosti - Northwest, Olga Vtorova) - The head of Russia's Federal Anti-Monopoly Service told reporters Tuesday that the country's current tax system would eventually ruin domestic oil companies. "What is happening now is economic poaching," said Igor Artemyev, now in St. Petersburg for a conference-cum-seminar on competition in the financial services market. Artemyev said 20,000 oil wells had been closed down in Russia over the current rate of severance tax, a tax charged by the state on natural resources, which he said should be differentiated and not tied to global prices. A source in Russia's Economic Development and Trade Ministry said Tuesday that the ministry would offer severance tax differentiation proposals before the end of this week. Tax rates can vary depending on the age of deposits and oil quality. The source said severance tax on oil extracted from new, as well as worked-out, deposits could be lower. The possibility of reducing tax on low quality oil is also being reviewed. Economic Development Minister German Gref said experts were drafting proposals on severance tax differentiation in order to encourage the development of new deposits and curb domestic oil product prices. Artemyev also noted the lack of competition on the energy resources market, which, he said nurtures corruption. He urged the emergence of energy stock markets, which, he said, would reduce opportunities for corruption.

Russia loses energy superpower status as oil sector stagnates

MOSCOW, October 4 (RIA Novosti) - The forecasted fall in Russian oil production this year to a symbolic 2.4% against the backdrop of skyrocketing oil prices points to the start of a period of stagnation in the oil sector that threatens to strip the country of its energy superpower status, a market watcher wrote in a respected business daily Tuesday. Vedomosti published an article by Sergei Suverov, the head of analysis with Gazprombank, a subsidiary of the Russian state-owned natural gas monopoly Gazprom, which said analysts saw a number of reasons for the stagnation. High taxes impeded investment and production growth, and political risks prevented companies from making long-term investments. Dwindling geological resources, poor export infrastructure, and frozen investment programs of two oil majors - troubled Yukos and Sibneft, in which Gazprom bought a 72.7% of share package last week - compounded these problems. Suverov said traffic jams and bottlenecks remained at the busiest transport corridors, and the timeframes for commissioning new corridors were uncertain, as they partially depended on the oil lobby. In addition, he said that high taxes represented a separate matter. Although the flow of petrodollars to the economy was a vitally important resource for the Stabilization Fund and a key to macroeconomic stability, Suverov continued that easily accessible reserves had been almost exhausted, and new projects, including shelf exploration in Western Siberia, required substantial funds. The oil sector today cannot be called more efficient than other industries, as investors value long-term returns more than current profits, Suverov wrote in the daily. Suverov said the situation could be remedied if Russian oil companies were encouraged to pursue long-term economic projects and, possibly, to expand to foreign markets. The analyst cited the example of Norway-based Norsk Hydro, whose current reserves are about to expire. The company signed a $2.45 billion deal to buy the U.S. independent oil company, Spinnaker Exploration, whose assets are concentrated in the Gulf of Mexico. Another example, Suverov said, is Russia's biggest private crude producer, LUKoil, which plans to obtain at least 15-20% in international projects. It is also already expanding to Kazakhstan's oil market, which shares LUKoil's interest in developing Caspian reserves. In the end, Suverov referred to the famous American saying: What's good for GM is good for America. Russia is yet to strike a balance between the state-controlled and corporate segments of the economy, Vedomosti said.

Monday, October 03, 2005

Sakhalin-I oil production begins

YUZHNO-SAKHALINSK, October 1 (RIA Novosti, Pyotr Tsyrendorzhiev) - The Sakhalin-I international oil and natural gas project began production in Russia's Far East Saturday, a local press spokesman said.A platform on the northeastern coast of the Sakhalin Island began pumping hydrocarbons from the Chaivo field on the shelf of the Sea of Okhotsk to the Komsomolsk-on-Amur and De-Kastri terminals in the Khabarovsk region. Senior energy and industry officials, including Russian Industry and Energy Minister Viktor Khristenko, Indian Energy Minister Mani Shankar Aiyar, Japanese Deputy Economic, Trade, and Industry Minister Hirata Koichi, and Sakhalin Governor Ivan Malakhov attended the inaugural event. The Sakhalin-I project, an international consortium comprised of operator Exxon Neftegaz (30%), Russia's Rosneft (20%), India's ONGC (20%), and Japan's SODECO (30%), is designed to develop the Arkutun-Dagi, Odoptu, and Chaivo deposits on the island's northeastern shelf. Their recoverable reserves are estimated to total 2.3 billion barrels of oil and 17.1 trillion cubic feet of natural gas. Four billion dollars has already been invested in the project, which is expected to cost up to $13 billion, making it one of the largest direct foreign investment projects in Russia. Experts said Russia could gain $40 billion from the project.

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