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Tuesday, October 31, 2006

German Economy Minister Speaks Against Dependence on Russian Gas

German Economy Minister Michael Glos / Photo: AFP27.10.2006 MosNews - Germany should not increase its dependence on Russian gas deliveries, because it is unclear what course will be chosen by Moscow after the Russian President Vladimir Putin leaves his post in 2008. Such an opinion was expressed by the German Economy Minister Michael Glos, whose spoke at an energy conference in Berlin on Thursday, Oct. 26. “We do not know who will manage Russia for the next five or ten years,” he said, quoted by the Bloomberg agency. Michael Glos noted that Russia is strengthening its status of the world’s largest energy resource exporter and added that Germany should diversify its energy vendors. The minister also pointed out that Russia is trying to return a part of its lost status as the global leader in military sphere by aspiring to occupy leading positions in energy issues. “This is why I speak in favor of diversification,” he said. Glos added that the German government plans to formalize its energy relationships with Russia and the European Union in a separate document — an agreement on partnership and cooperation. Germany will insist on resolving this issue when it becomes the EU chair in January 2007. The European Union has been trying to force Russia to sign another binding document — the European Energy Charter, but Moscow officially refused to sign this agreement in its present form, because it feels that the charter binds Russian companies, in particular state-controlled gas monopoly Gazprom, with excessive obligations.

Rosneft likely to attract USD 24.5bn loan to buy Yukos' assets

27.10.2006 IntelliNews Today - Rosneft is holding talks with several banks to attract USD 24.5bn loan. The oil major needs the funds to acquire Yukos’ assets, which may be auctioned after the appraisal is completed in early 2007. Reportedly, Rosneft is negotiating with 7 foreign banks, including Citibank, ABN Amro and JP Morgan. Analysts expect that the oil company will also need to make an additional share flotation after its recent IPO. Some sources say that the loan negotiations are almost completed. According to the latest estimations, the value of Yukos’ key assets amounts to USD 22bn. It is possible that Rosneft wants to compete for all of the Yukos’ assets. Still, Gazprom is also considered to be a strong potential competitor. Reportedly, Deutsche Bank wants to buy out Yukos debt and the bank is most probably acting on behalf of Gazprom. If Rosneft attracts the loan, it will be the biggest loan attracted in Russia after the USD 13bn loan taken out by Gazprom for Sibneft acquisition.

Sakhalin Energy ready to indemnify for the damage caused by Sakhalin 2 project but skeptical of the figures

10–27–2006 Regnum News – The operator of the Sakhalin 2 project, the Sakhalin Energy company, is ready to indemnify the ecological damage caused by the project but is skeptical of the figures given during the Oct 25 conference on the ecological safety of the Sakhalin 2 project, reports If an objective assessment finds out that the damage caused by Sakhalin Energy to the environment is much bigger than the company’s preliminary estimates, we are ready to make all the necessary payments, says Sakhalin Energy CEO Ian Craig and adds that the company doubts that the figures are precise. He says that the company has made no changes to its estimates of late. Last time the company changed its estimates was increasing the project expenses from $10bln to $22bln in Sept 2005. Craig says that within a month they are expecting to receive the state expert conclusion concerning the raise in the estimates. He says that they are expecting difficulties, but it’s hard to say what kind of difficulties these will be. The acting head of the Sakhalin region department of the Rosprirodnadzor, chairman of the commission for ensuring compliance with the ecological legislation during the Sakhalin 2 project Dmitry Belanovich says that in Nov the commission’s experts from the Academy of Sciences and the Rosprirodnadzor will assess the state of flora and fauna on Aniva Bay (the Sea of Okhotsk) and will appraise the damage caused by the local gas processing plant. “The preliminary damage is 10bln RUR. Sakhalin Energy has substantially deviated from its project documentation, they have failed to coordinate the blasting operations and to present the results of the biometrical survey we have asked for,” says Belanovich. As REGNUM reported earlier, as a result of inspections, the Rosprirodnadzor has detected a number of violations of the ecological legislation during the Sakhalin 2 project. The Russian Ecology Ministry has decided to reverse the 2003 decision of the state ecological expert department to approve the second stage of the project. In fact, the operator company has failed to fulfill half of the experts’ recommendations. The Sakhalin 2 project is based on production sharing agreement. The project is developing the Piltun Astokh and Lunskoye fields. Their extractable reserves are 150mln tons of oil and 500bln c m of gas, respectively. The shareholders of the operator company, Sakhalin Energy, are Royal Dutch Shell (55%), Mitsui (25%) and Mitsubishi (20%).

LUKOIL Faces Threat of China

Karazhanbasmunay Field10-27-2006 KommersantChinese state investment fund, CITIC, is acquiring Kazakh Karazhanbasmunay. Karazhanbasmunay is the second big production asset in Kazakhstan grabbed by the government’s companies of China. The possible transfer of Karazhanbasmunay into the ownership or under the management of Chinese oil companies threatens the plans of LUKOIL to become the second biggest player in Kazakhstan, losing only to Kazmunaygas there.
Canadian Nations Energy announced yesterday it agreed with Chinese CITIC Group about selling its Kazakh oil assets for $1.9 billion. The deal that the authorities of Kazakhstan haven’t sanctioned yet is expected to be completed by December. Karazhanbasmunay is the key asset of Nations Energy (96.4 percent). The company produces from Karazhanbas field, which proven reserves equal 46.6 million tons in crude equivalent, according to Nations. CITIC’s deal with Nations Energy signals Russia’s oil blockbuster LUKOIL will have to take pains to press the Chinese in Kazakhstan and tail only Kazmunaygas there. In Kazakhstan, LUKOIL produces crude under nine projects, participating 50:50 in most of them. The company held preliminary negotiations about acquiring Karazhanbasmunay but preferred to focus on Nelson Resources assets that it had acquired earlier. LUKOIL produced 3.67 million tons of crude in Kazakhstan (6 percent of all production) past year and intends to jump to 6 million tons in 2006 and to fetch 8 million tons to 10 million tons by 2010.

Adverts Awash with Oil Dollars

10-25-Kommersant - Russia’s oil blockbuster, LUKOIL, has picked out the company for media services. Optimum Media OMD will plan LUKOIL’s advertising campaigns and buy media for them till late 2007. LUKOIL that intends to spend roughly $35 million for promotion in the following 14 months will become one of the 30 top advertisers in Russia. Other oil majors will follow, the analysts forecast.
LUKOIL held its media tender Tuesday, where the bidders were Carat (Aegis Media/OKS), Media Ways, Made, OMD Media Direction (BBDO Russia Group) and Optimum Media OMD (DDB Russia Group). The latter was acknowledged the winner and will make a contract with LUKOIL for planning its advertising during two months of this year and over the whole 2007. In LUKOIL, they declined to specify the media budget but promised to become much more aggressive in advertising. Sources familiar with the tender provisions said LUKOIL would spend around $35 million till late 2007, including $25 million for TV advertising. The amount is the record for oil companies and will make LUKOIL one of the 30 top advertisers in Russia. “LUKOIL has a common brand for engine oil and filling stations, but taken just for promoting its services in these two categories, the announced budget exceeds similar costs of competitors by many times,” said Maxim Khabur, TNK-BP’s senior manager for brand and communications.

High hopes on new oil futures contract

10–30–2006 RBC News – Russian Economy Minister German Gref is convinced that Russia’s new export blend crude oil REBCO futures contract has a great future. “The market has received REBCO very positively,” Gref told reporters on Monday. First REBCO deals have already been made, according to the Economy Minister. Any new brand needs time for promotion and recognition, Gref said commenting on the slow reaction of the market to REBCO. He said the Economy Ministry expected this, and that so far “everything goes to plan.” The Russian Export Blend Crude Oil (REBCO) futures contract was launched by the New York Mercantile Exchange (NYMEX) on 20 October 2006.The contract features physical delivery of REBCO on a free-on-board (FOB) basis at the Russian port of Primorsk on the Baltic Sea. The contract size will be 1,000 barrels denominated in US dollars per barrel. The last day of trading will be three business days before the 15th calendar day before the first day of the delivery month. NYMEX will list the contract for 72 consecutive months beginning with the January 2007 contract. Experts say REBCO is set to replace Urals contracts, tied to the price of Brent crude oil. REBCO’s price is calculated based on the market conditions. Given the growing demand for energy and high oil prices, shifting to REBCO will allow Russian companies to boost their profits, which means higher tax revenues. According to Deputy Economy Minister Kirill Androsov, moving to the new oil pricing mechanism will increase budget revenues by about $3 billion a year.

Itera may want to keep Yugneftegaz

RBC, 30.10.2006, Moscow 18:39:17. Itera may decide not to sell a minority stake in its subsidiary Yugneftegaz, the gas group's CEO Vladimir Makeyev told journalists. The decision will depend on the results of the review by the company of the volume of the investment program for 2007, he said. As reported earlier, the company intended to sell a stake in Yugneftegaz in order to obtain a partner in large-scale exploration work in Kalmykia. Makeyev stressed that the company was resolute about it, and that the work required major investment. According to the chief executive, talks are meanwhile continuing with potential buyers, among them India's OIL India, China's CNPC, and Tatneft. The size of the offer is not disclosed. When asked about when the deal for the sale of a stake in Sibneftegaz to Gazprom would be closed, Makeyev declined to comment, because negotiations regarding the deal were still ongoing. The companies earlier planned to close the deal in October 2006.

Rosneft denies media reports on western bank loan

RBC, 30.10.2006, Moscow 14:13:59.Rosneft did not confirm today's media reports about issuing a mandate to seven western banks with a view to raising $24.5bn in a loan. As the oil company's press office explained to RBC, the Board of Directors of Rosneft had not convened on this matter, "hence, such information is not true to fact." According to the press office, the corporation's Board of Directors does not plan to discuss this matter any time soon. Earlier reports stated that Rosneft was in talks with seven western banks, including Citigroup, ABN Amro, J.P.Morgan, over organizing financing worth $24.5bn for acquiring a number of assets, including YUKOS.

Sakhalin II may be suspended in some sections - minister

MOSCOW, October 27 (RIA Novosti) - The Shell-led Sakhalin II hydrocarbon project in Russia's Far East could be suspended in some sections, Russia's natural resources minister said Friday. The multibillion-dollar Sakhalin II project has been accused of inflicting large-scale damage to the ecosystem on Sakhalin's, including illegal deforestation, the dumping of toxic waste, and soil erosion. Yury Trutnev said the project would not be suspended in its entirety before the operator submits plans to fix environmental violations. Trutnev, echoing Russian senior authorities' earlier assurances, said: "I have not said that we will freeze the Sakhalin II project entirely, but the situation is very complex. I would like to see the proposals to fix the violations." Trutnev lashed out at Sakhalin Energy, the operator of the giant oil and gas project: "What I saw on Sakhalin surpassed even my worst expectations." "Much of what is happening there is not a result of incorrect project solutions, but of gross violations in the course of the project's implementation by contractors," he said. The minister said certain activities of project contractors and operators violated the Russian Criminal Code. He said the results of investigations into the violations will be handed to the Prosecutor General's Office in two weeks, and the operator could face criminal charges. Earlier this week, Trutnev gave the country's environmental watchdog another month to complete its inquiry into the alleged violations. The minister said the operator pledged to correct some of the problems on its own, but that many violations had caused irreparable environmental damage, for which the company will have to compensate. He did not specify figures, but said the compensation will be considerable, even for a large company like Sakhalin Energy. Shell holds a controlling 55% stake in the Sakhalin II deposits being developed under a production-sharing agreement. Japan's Mitsui and Mitsubishi own 25% and 20%, respectively. The PSA schemes introduced in the early 1990s to attract foreign investors allow companies involved to comfortably recoup all expenses before sharing any of their profits with the state.

Saturday, October 14, 2006

Russia Plans to Limit Foreign Investment in Strategic Sectors

14.10.2006 MosNews - Russia’s energy and industry ministry has issued plans to impose limits on foreign investment in strategic sectors of the Russian economy including energy reserves, AFP reports. "The draft law was sent to the government today... We hope it is adopted as soon as possible," said Sofia Malyavina, a spokeswoman for the ministry. "The government will discuss this next Thursday," Malyavina said. The draft law defines seven strategic sectors of the Russian economy: security technology, arms production, aircraft building, space, nuclear energy, natural monopolies and federal mineral reserves. Foreign investors will need special permission from a new inter-governmental committee to invest in these sectors and must receive an answer to their application within three months, according to a statement from the ministry. "On the one hand this will provide for the protection of the national interests of the Russian Federation, and on the other will allow the formation of a predictable and transparent business climate for foreign investors," the ministry said in the statement.

Germany, France Urge Russia to Ratify Energy Charter

FranceGermanyrussia13.10.2006 MosNews - On Thursday, Oct. 12, France and Germany urged Russia to ratify an international energy charter that would provide the European Union with greater security for its energy supplies. The charter, drafted in 1991 by the EU’s executive commission, aims to improve energy cooperation between the EU and Russia. Russia has signed the pact in 1994, but is yet to ratify it. The charter regulates transit and investment in the energy sector and would allow for market competition between foreign and independent companies. Ratification would end the monopoly of Russia’s state-run gas giant Gazprom. “In order to build a stable and balanced EU-Russia energy partnership, France and Germany consider that Russia should rapidly and effectively apply the contents of the energy charter,” said a joint statement issued after a Franco-German ministerial meeting here. The statement was quoted by Associated Press/ Europe has been looking to ensure the stability of its energy supplies after a crisis in which major producer Russia temporarily cut off its taps earlier this year, causing supply disruptions. The “energy partnerships” outlined by France and Germany aim to “reach a better energy security, more transparency and predictability of markets and an equal openness of investment with respect to rules of competition,” the statement said. The two countries emphasized relations with Russia, which controls 30 to 40 percent of the world’s gas reserves, and urged Moscow to sign the international Energy Charter. Answering the calls for greater security of energy supplies, Russia has said that there also exists a security of demand. Russian authorities want European consumers to sign long-term contracts with the country’s oil and gas companies, thus ensuring them from possible price and demand falls. Russia claims that security of demand would help the Russian companies to invest more in exploration and development.

Russian Officials Deny Plans to Revoke Total�s License for Giant Oil Deposit

Yuri Trutnev / Photo from www.kommersant.ru13.10.2006 MosNews - Russia’s Natural Resources Ministry said on Thursday, Oct. 12, that it will not revoke the license held by French oil major Total to develop a field in the north of European Russia. “No action is being taken to revoke the license,” Natural Resources Minister Yuri Trutnev said, quoted by RIA Novosti. “Just as with regard to other subsoil users, this is absolutely routine work related to overseeing the implementation of licensing agreements.” As MosNews reported, Russian authorities said in late September that they would start probes into deposits developed by Total and the Russian-British joint venture TNK-BP. The projects in questions are Total’s Kharyaga oil deposit and TNK-BP’s Kovykta gas field in East Siberia. “As to the Kharyaga deposit, we have questions about the way the project has been implemented,” Trutnev said. “We are not treating them as critical so far, but they do exist. We have a timetable for checks. We will conduct probes into the Kovykta and Kharyaga deposits for compliance with the licensing agreements and environmental standards according to the timetable.” In April, the ministry accused Total of failing to meet its targets for Kharyaga under a 1995 production-sharing agreement. It said the investor failed to increase production of crude and introduce new technologies and equipment for effective production since the agreement came into force in 1999. Ministry experts warned that the situation could result in losses for Russia, as the country “will have to continue sending the entire deposit’s output to the investor in compensation for its expenses.” But Russian President Vladimir Putin told journalists in France that talk of Total’s license for Kharyaga being revoked was an exaggeration. “Rumors that the license will be revoked are highly exaggerated,” Putin said after a meeting with his French counterpart. Total owns a 50 percent stake in the project, alongside Norway’s Hydro (40 percent) and Russia’s Nenets Oil Company (10 percent).

Sakhalin-3 to Be Explored in Korean

south korea10-13-2006 Kommersant - South Korea is eyeing Sakhalin-3 project, Finance Minister Kwon O-kyu made clear yesterday. Russia’s Rosneft and Chinese Sinopec are developing all area licensed under the project, and South Korea will hardly join the alliance. But it may count on the area that hasn’t been distributed yet.
Chief of Russia’s Technical Oversight Service, Rostekhnadzor, Konstantin Pulikovsky (who is also in charge of Russia’s-Korean commission on economic, research and technological cooperation) held negotiations with South Korean Finance Minister Kwon O-kyu, Rostekhnadzor announced Thursday. During the talks, Kwon O-kyu made clear Korea’s interest towards developing fields of Sakhalin-3 project. In Rostekhnadzor, they were unable to specify what particular form of joining the project the minister had meant.
Sakhalin-3 project includes four areas – Vostochno-Odoptinsky, Ayashsky, Veninsky and Yuzhno-Kirinsky. The aggregate resources are estimated at 620 million tons of crude and 767 billion cu meters of gas. So far, the licenses have been released only for the Veninsky area, which resources are estimated at 168 million tons of crude and 258 billion cu meters of gas. Rosneft holds 49.8 percent in the project, Sakhalin Oil Co. (controlled by local authorities) and Chinese Sinopec have 25.1 percent each.
The Koreans will hardly see Veninsky area, while the other areas are yet in the undistributed fund and Russia has no intention to put them up for sale in the near future. Anyway, the reserves have been acknowledged strategic, so the foreigners cannot have more than 49 percent in the project. Rosneft itself expressed the desire to get a share, and Indian ONGC is willing to establish a consortium with it. Moreover, LUKOIL said it would fight for the areas in tandem with Gazprom.

Russia to Set Oil Prices on Its Own

Oct. 10, 2006 Kommersant by Dmitry Butrin and Alexey Shapovalov - Russia’s Economic Minister German Gref has presented a concept of an independent pricing system for Russian oil at a meeting with President Vladimir Putin. The Russian Fuel and Energy Exchange in St. Petersburg and futures trading of Russia’s REBCO crude oil are to become key elements of Russia’s pricing independence from North Sea’s Brent brand.
The meeting with Vladimir Putin dedicated to prospects of Russian oil trade was not announced beforehand. The economic development and trade minister presented a comprehensive plan for a revolution of world oil prices and transferring to independent pricing for oil export from Russia. The price on the Urals brand is currently calculated as a derivative from the Brent oil and BFO blend which is extracted at three deposits in North Sea. German Gref’s performance was largely an impromptu, and President Vladimir Putin obviously was not always getting him right. An ITAR-TASS correspondent who was present at an open part of the session reports that the president endorsed am idea to call futures contracts on Russian oil exports REPKA [turnip in Russia] and praises the name of the national blend.
In fact, the contract which will be listed at the NYMEX from October 20 calls futures on Russian oil REBCO (Russian Export Blend Crude Oil).
The Russian Energy Futures consortium, the joint venture of the NYMEX and the Crown Resources former trading company (now Expertica), have been drawning up futures on REBCO since 2005. The succor of the NYMEX will help the Russian Economic Development Ministry make a solid chain out of separate links of Russia’s oil independence from the Urals pricing system.
Crown Resources launched plans to replace Urals with REBCO back in 2001. Now they have received state backing. After trading on REBCO has become buoyant, this contract will be listed at other exchanges, mainly at the Russia Fuel and Energy Exchange (RFEE). After Vladimir Putin met St. Petersburg Governor Valentina Matvienko, it became clear that the RFEE, which was registered in Khanty-Manskiysk last month, would move to St. Petersburg. Even the building has been found for it. The exchange is to be located in the building of the old St. Petersburg exchange where the Naval Museum is now situated.
German Gref’s report says that the Russian Fuel and Energy Exchange in St. Petersburg will become an element in the chain of permanent Russian oil trading in the world. The REBCO contract has it that by 2008 the futures will be listed not only at the NYMEX and CME Globex but also in London, and trading is also possible at an exchange in South East Asia. Russia is now in talks with Azerbaijan and Kazakhstan on their participation in the RFEE. Quite possibly, the Russian Energy and Industry Ministry will try to convince the CIS neighbors to trade their oil, which is also stitched to Brent, with the RFEE or on their own. The Economic Development and Trade Ministry now views the Russian Fuel and Energy Exchange only as a floor for trading oil products. German Gref says deals on black and diesel oil will start at the exchange before the end of 2007. The main reason for the independence of Russian oil export contracts from Brent is an anticipated price hike. Extraction and trade volumes of Brent are now far lower than Russian supplies of Urals to the international market. The Urals pricing is not transparent, Alexey Kuzminichev, one of the creators of Russian Energy Futures, says. Ultimate prices on Urals are now set at the Platts and Argus agency on the basis of the so-called market reports which describe Urals trading contracts, based on Brent prices. The difference between Brent and Urals prices, or the differential, almost always hovers around $0.2-0.6 per barrel which is explained by the poor quality of Russian oil.
Oleg Kirsanov, editor-in-chief of the Russian office of Argus, told Kommersant: “I can’t say why but the Russian government is sure that after the contract is launched the price on Russian oil will rise. Perhaps, pricing of Brent and Urals will be separate some day, but it will not mean that Urals will be more expensive. There will be more chances for gerrymanders at the market. Jorge Montepec, marketing director at Platts, said: “It is too early to draw any conclusions. It took three or four years to launch Brent to make it attractive.” Analysts of Russian officers of Morgan Stanley and Goldman Sachs declined to comment on the news, saying that the outlook of the independence of Russian oil from Brent is still unclear.
Non-supply futures on Russian oil have been traded at the RTS exchange since this summer. Yet, the turnover is still paltry. Oil companies say that a contract is not attractive to major international traders if there are no actual oil supplies behind them. But the first deals with the REBCO, futures contracts on oil supplies from Primorsk, will appear at Chicago’s CME Globex trading system on October 23. No matter how prices behave on the first trading day, the fact will remain – Russia oil will be traded as an independent produce for the first time. The Russian Fuel and Energy Exchange is going to start quoting REBCO futures by the end of 2007.

Earth Quakes Under LUKOIL

10-13-2006 Kommersant by Denis Rebrov - Russian Ministry of Nature begins checking whether subsoil users respect nature-protection laws in the Komi-Permyak Autonomous Area. First of all, the check will concern LUKOIL oil company which might lose 7 licenses. The Ministry said no one will escape the check. Rosneft, Surgutneftegaz, and TNK-VR will also be checked soon.
Russian Ministry of Nature said yesterday that the State Nature Protection Committee, headed by Deputy Minister of Nature Oleg Mitvol, set off for the Komi-Permyak Autonomous Area (Komi). Mitvol is to check whether the geological conditions of mining licenses are fulfilled, and to inspect the state of soil, forest and water resources. “First of all, it concerns the structural subdivisions of LUKOIL,” the Ministry says. It refers to LUKOIL-Komi which has over 50 licenses. LUKOIL’s deposits in Timano-Pechorsk oil-and-gas province, which includes sites in Komi, are about 520 million of metric tons of oil.
The Ministry said it decided to carry out checks after environmental specialists said that “LUKOIL hews down trees without forestage permission, and the damages already amount to millions of dollars”.
The State Nature Protection Committee has already inspected LUKOIL’s activities in Komi, discovering violations on 11 licensed sites: Usinsk (Permo-Carboniferous and Devonian deposits), East-Masteryelsk, Vozeisk, South-Vozeisk (Famennian deposit), Usinsk (Famennian deposit), South-Usinsk, Upper-Vozeisk, Suborsk, Lekkersk, Tabliksk, and Usinsk (part of Permo-Carboniferous deposit). Oil is extracted from the first 2 deposits, while others should be under geological exploration. “LUKOIL has already received a warrant for revocation of licenses for 5 of the deposits. The company should eliminate the discovered deficiencies within 6 months, otherwise the licenses will be recalled. The main flaw is that geological exploration and drilling work is behind schedule,” a source in the Ministry told Kommersant, adding that warrants were given to other 2 sites – Suborsk and Lekkersk, and the deficiencies there should be eliminated within 3 months. “It is already clear the company will not manage to do the entire scope of work preconditioned by the agreement,” the Ministry said. LUKOIL gave the only comment that it strictly abides by the requirements of nature protection laws and “is ready to cooperate with Oleg Mitvol”.
Experts are not surprised by the Nature Protection Committee’s activeness. “Many Russian companies obtained a great number of resources in the 1990s. Meanwhile, they lack means for developing all deposits. They develop most profitable fields, and preserve the rest. Consequently, Russia receives considerably less oil,” said Troika Dialog analyst Valery Nesterov. He does not think that the Nature Ministry’s action is specifically against LUKOIL, adding that licenses have hardly ever been recalled so far. At the same time, however, Russian President Vladimir Putin met with Minister of Nature Yuri Trutnev, announcing that the government “should adopt corresponding resolutions” on the companies that breach license terms.
The Ministry of Nature claims that LUKOIL is just one of the companies to be checked. Minister Trutnev will visit the Khanty-Mansi Autonomous Area on his way to Sakhalin where he is to go together with members of the Prosecutor General’s Office on October 24. The meeting devoted to deficiencies in meeting license agreement requirements will be held there. The Ministry says there already are some “undetermined” claims to Rosneft, Surgutneftegaz, and TNK-VR.

Economic Charter Above All

10-13-2006 - Kommersant by Dmitry Butrin - Germany and France want Russia to keep to Europe’s energy rules
German Chancellor Angela Merkel has responded to Vladimir Putin’s offer to create an energy alliance between the two countries and send major reserves of the Shtokman gas deposit to Germany. Talks of the German leader and French President Jacques Chirac finished with a decision that France and Germany would form an energy alliance in the EU without third parties. At the same time, Russia was asked to keep to the Energy Charter, a document that Vladimir Putin dismisses as the one “running against Russia’s national interests.” French President Jacques Chirac and German Chancellor Angela Merkel signed an agreement on the creation of “balanced energy partnership” between the EU and Russia following a session of the French-German council of ministers in Paris yesterday. Russia’s energy partnership with Europe is to be formed next spring at an energy summit of the EU and its energy partners in Berlin. New relations are to be established in a special framework agreement which will replace the current partnership and cooperation agreement between the EU and Russia, signed in June 1994. It entered into force in December 1997 and was due to be valid for ten years.
Chances of Russia and the EU coming to an agreement in Berlin to create the axis of energy are not very high. An official statement of the French-German council of ministers says that “Russia should start quickly and effectively enforcing the Energy Charter and its appendix, the Transit Protocol.” The two nations are offering Russia to base the new agreement on principles of the charter as well as on the declaration of G8 nations, adopted at the St. Petersburg summit.
Russia’s President Vladimir Putin has repeatedly declared that the Energy Charter is unfavorable for Russia and is not going to be ratified, though Russia adopted it in 1994. Meeting Jacques Chirac and Angela Merkel on September 23 in Compiegne the Russian president confirmed that Russia would not sign documents of the Energy Charter and its Transit Protocol if the document was not amended so that it would be favorable for Russia. The declaration of French and German governments makes no mention of any changes in the charter but it also mentions the Transit Protocol which has long been a stumbling block in the Charter issue between Russia and Europe. Under the protocol, Russia should give access for free gas transit from the Central Asia to Europe while European pipelines do not fall under the force of the Transit Protocol.
Germany’s leader Angela Merkel basically gave a negative reply to Vladimir Putin who had earlier offered Germany one of the most lucrative deals ever. He suggested that export supplies from the Shtokman deposit be directed to Germany. The offer was voiced right after Gazprom’s CEO Alexey Miller had dismissed all foreign partners from potential participation in the project. Earlier, the Russian president had raised the Shtokman issue in Compiegne hinting that France-based Total, a short-lister for Gazprom’s partners on Shtokman since September 2005, had good chances to enter the project worth as much as $20 billion.
Vladimir Putin raised the stakes this week in Germany after Gazprom had announced that it would develop Shtokman on its own. Russia’s president said at a news conference with Angela Merkel on Wednesday that Germany could expect the supply of 50-55 billion cu. meters of gas from the Shtokman field, not the early declared 20-45 billion. This statement could give Germany a hope for a 70 percent rise in production at Shtokman whose reserves are estimated at 2 trillion cu. meters of gas. The Russian president made more than a profitable offer to Angela Merkel: “Germany may turn from a large consumer into the European center of gas distribution.”
This offer meant a separate deal between Russia and German on energy policy inside the European Union. It is worth mentioning that the EU directive on the liberalization of the gas market comes into force on July 1, next year. The blueprint makes Gazprom’s operations on EU markets harder as it does not guarantee the Russians free gas transit across the EU to ultimate customers – Germany’s E.On Ruhrgas and RWE, French Gaz de France and Austria, Italy and Greece. Raising stakes, Vladimir Putin obviously took it into account that Germany was still the only opponent of gas market liberalization in Europe. The liberalization is not profitable for E.On Ruhrgas and RWE as well as for Gazprom’s partners, German gas distributors WINGAS, WIEH and Verbundetzgas.
Angela Merkel, however, preferred another agreement – the one with Jacques Chirac who was left overboard by Russia’s president in Shtokman agreements. The German-French joint declaration mentioned relations with Russia only in the second point. It was the alliance between the two countries on energy policy in the EU that made number one. The upcoming Berlin conference is to concentrate on the EU-Russia framework agreement as well as development of energy partnership with the Central Asia, Caspian region nations, Northern Africa’s countries and cooperation with transit countries, such as Ukraine and Moldova which suffered Gazprom’s gas blockade this January.

Thursday, October 12, 2006

Ministry denies plan to revoke Kharyaga oil deposit license-1

MOSCOW, October 12 (RIA Novosti) - Russia's Natural Resources Ministry said Thursday it will not revoke the license held by French oil major Total to develop a field in the north of European Russia. "No action is being taken to revoke the license," Yury Trutnev said. "Just as with regard to other subsoil users, this is absolutely routine work related to overseeing the implementation of licensing agreements." The Ministry said in late September it would start probes into deposits developed by French oil major Total and the Russian-British joint venture TNK-BP. The ministry plans to look into the Kharyaga oil deposit, developed by Total, and the Kovykta oil and gas field, a TNK-BP project in East Siberia. "As to the Kharyaga deposit, we have questions about the way the project has been implemented," Trutnev said. "We are not treating them as critical so far, but they do exist. We have a timetable for checks. We will conduct probes into the Kovykta and Kharyaga deposits for compliance with the licensing agreements and environmental standards according to the timetable." In April, the ministry accused Total of failing to meet its targets for Kharyaga under a 1995 production-sharing agreement. It said the investor failed to increase production of crude and introduce new technologies and equipment for effective production since the agreement came into force in 1999. Ministry experts warned that the situation could result in losses for Russia, as the country "will have to continue sending the entire deposit's output to the investor in compensation for its expenses." But Russia's president told journalists in France that talk of Total's license for Kharyaga being revoked was an exaggeration. "Rumors that the license will be revoked are highly exaggerated," Vladimir Putin said after a meeting with his French counterpart. Total owns a 50% stake in the project, alongside Norway's Hydro (40%) and Russia's Nenets Oil Company (10%). Russian prosecutors issued a warning that TNK-BP, which leads the Kovykta project, could have its operating license for the East Siberia deposit, one of the largest in the region, revoked if it fails to address environmental protection and other problems. Kovykta, with 1.9 trillion cubic meters of proven reserves, is highly important to the Russian government, which is pursuing an ambitious project to build a gas pipeline network to meet Asian nations' energy needs and to diversify its export destinations. The ministry's decisions with respect to the two deposits came following a move to annul the approval of an environmental study on the Royal Dutch Shell-led Sakhalin II energy project off Russia's Pacific coast. Sakhalin II's oil and gas fields are being developed under another PSA. Russian energy giant Gazprom was in talks with Shell over swapping a Sakhalin II stake for a share block in another energy project in northern Russia, but pulled out of the talks. Gazprom has also been in talks with TNK-BP on a role in the Kovytka deposit.

U.S. commerce chief voices concerns over investments in Russia

WASHINGTON, October 12 (RIA Novosti) - The U.S. secretary of commerce has highlighted disturbing trends in the economy and press freedom in Russia, which he said can affect economic growth and the investment climate in the country. Speaking at the U.S.-Russia Business Council, which represents over 300 American companies working in Russia, in New York Wednesday, Carlos M. Gutierrez also emphasized Washington's commitment to resolving issues hampering Russia's accession to the World Trade Organization. Gutierrez said American companies have complained of a "soft nationalization" taking place in some sectors of Russia's economy, which challenges the economic and political successes Russia has made since the collapse of Communism. "American companies are anxious to invest in Russia, but many remain hesitant to do so," Guitierrez said. "Some have invested tens of millions in a production facility only to be faced with a competitor backed with preferences in the form of government ownership or capital," he said without elaborating further. This stifles competition and hurts Russia's reputation, and could ultimately thwart efforts to create a dynamic economy, he said. The Russian government has moved to regain control of crucial hydrocarbon assets privatized in murky deals in the 1990s. The controversial affair involving Yukos, once Russia's largest independent oil company but now in bankruptcy proceedings, has been particularly criticized in the West. The company's core production unit, Yuganskneftergaz, was acquired by state-controlled Rosneft. Russian authorities are now mounting pressure on the vast hydrocarbon projects led by foreign companies in Russia's Far East, citing major environmental and other violations. And Russia's energy giant Gazprom made a surprise announcement this week that it will develop the giant Shtokman gas deposit in the Barents Sea on its own, leaving behind the U.S.' Chevron and ConocoPhillips, as well as other companies earlier on a shortlist of contenders for the project. State-owned Gazprom also said it will redirect main gas deliveries from the deposit, earlier destined for the United States, to Europe. The moves are widely believed in the West to have affected Russia's investment climate. Among further challenges to the country's progress, Guitierrez pointed to the murder of a senior Russian Central Bank official, who contributed to improving the Russian financial system, and of an outspoken journalist in Moscow. Journalist Anna Politkovskaya, 48, known for her staunch criticism of the Kremlin, its military campaign in Chechnya, and current Kremlin-backed Chechen authorities, was gunned down in Moscow last Saturday. Gutierrez said the killings of journalists should concern the Russian government if it recognizes the value of transparency for Russia's economic future. Russian Ambassador to the United States Yury Ushakov told the Council that Russia's top prosecutor has taken the investigation into Politkovskaya's murder under his control, and has promised to spare no effort to find and punish those behind the killing. Andrei Kozlov, 41, who oversaw bank licensing and led the Central Bank's efforts to close down dozens of banks for violations of banking legislation, particularly on money laundering, died September 14 after being shot the day before. "He was a Russian patriot, and he was a reliable, respected and honest public servant," Gutierrez said, adding that Russia must stem violence against public officials. Another banker - the director of a Moscow branch of Russia's state-owned foreign trade bank, Vneshtorgbank - was shot dead in Moscow late Tuesday in an alleged contract killing. Addressing the sensitive WTO issue, which is believed to have influenced Russia's Shtokman-related decisions, Gutierrez said Washington was seeking a bilateral agreement that is commercially sound. "Agricultural safety and the protection of intellectual property rights are two areas we are working hardest to resolve," Gutierrez said, pointing to the world's highest-volume online seller of pirated music, Web site, which continues to operate in Russia. Veterinary control of agricultural products and violations of intellectual property rights have been major stumbling blocks during Russia's bilateral WTO talks with the U.S. Talks broke down in July over a U.S. demand that Russian authorities issue certificates for American meat imports without prior safety checks. But Russia's Ushakov shifted part of the blame for the failure to achieve brisker economic cooperation on Washington, saying Congress and the media have been carried away with criticism of some of Moscow's policies and have not noticed the positive aspects in bilateral relations. The diplomat also said the Jackson-Vanik amendment, which restricted trade with the former Soviet Union, remains in force for Russia. He echoed President Vladimir Putin's earlier remarks that Russia is still subject to prejudice experienced by the former Soviet Union.


Deutschland uber Alles

Miller and Merkel01/02/2006 Kommersant by Natalia Grib, Dmitry Butrin; Vladimir Vodo, Vilnius - Gazprom will supply Angela Merkel, not George W. Bush

Gazprom will develop the Stockman deposit without foreign partners. That sensational announcement was made yesterday by head of the monopoly Alexey Miller. Gazprom had announced its desire to exchange a share in the project for direct access to the domestic markets of Western countries. Under the new concept, Gazprom will develop the deposit independently and supply natural gas through the North European Gas Pipeline to Germany. This represents a change in Russian energy strategy. No one expected a decision on Stockman to be made so quickly. Gazprom was still planning to attract partners in February of this year. It was considered a commercial project at that time and it was assumed that several partners would be chosen from the shortlist announced in September 2005 to develop the deposit and build a liquefied natural gas plant. That list consisted of the American companies Chevron and ConocoPhillips, the Norwegian Statoil and Hydro and French Total. The total cost of the project was to be $18 billion. The selection of partners was postponed indefinitely on April 25, however, after a disagreement about gas supplies to the European Union and further information on the project was forthcoming only from foreign policy discussions between Russia and the West.
Those discussions were concluded yesterday. Gazprom head Alexey Miller announced a new decision by the Gazprom governance board on Russia Today television, which is broadcast in the United States and EU. Gazprom will have no partners at Stockman. Rather, Russia will develop it itself. Nor will there be a liquefied gas plant. The gas from Stockman will be pumped through the Nord Stream pipeline (formerly known as the North European Pipeline) with Germany receiving priority in supplies.
Thus Russian President Vladimir Putin has brought a surprise gift with him on his two-day visit to Germany, which started today. At the Russian-German-French summit at Compiegne on September 23, Putin told German Chancellor Angela Merkel and French President Jacques Chirac that Gazprom was preparing to decide on redirecting its gas supplies from the Stockman deposit to the EU. At the time, that was taken as a demand that the United States to decide faster what concessions U.S. President George W. Bush would make in exchange for access to the deposit. Otherwise, the gas could be sent through Nord Stream and the Norwegian and French companies could develop the deposit. Yesterday, it was declared that the French and Norwegians won't be let into the Barents Sea either.
Putin cannot offer Angela Merkel Stockman too. He will make her a proposal on a wider scale – to make Germany Russia's main energy partner and main representative in the EU.
According to Miller, “Development of Stockman will be carried out independently, without attracting foreign partners, since they could not present assets corresponding in volume or quality to the reserves of the Stockman deposit.” The announcement had the impact of a bomb. All the potential partners were waiting eagerly for a decision, but a decision of a different kind. Yesterday, all those companies were refusing to comment until the situation became clearer. Experts questioned by Kommersant say that Gazprom will miss all deadlines for gas supplies if it develops Stockman on its own. ING Barings analyst Igor Kurennoi commented that “The market may be disappointed by Gazprom's announcement. Independent development will require more time, and that means that the production project and gas export will be pushed back into the future.” A Gazprom indirectly confirmed the same thing to Kommersant when he said that the Nord Stream pipeline would probably be fed by the reserves of the Yuzhno-Russkoe and Bovanenkov deposits at its first stage and only later would Stockman be connected to the pipeline.
A source close to the Norwegian companies thinks that Russia offended all of international society with its decision, which was “so rude and bear-like” that Russia can now expect international obstruction of its efforts. The source said that the Norwegian companies worked for a long time with the certainty that they would be chosen for the project. And since the announcement was made at the same time as public pressure was being applied to the British-Dutch Shell company, investors will look on Russia as a country that does not meet its conditions. He added that Gazprom has never developed a deposit at sea and will not handle the task successfully by 2011 since “that equipment can't be bought, it has to be developed.” However, one of the heads of the project at Gazprom half jokingly told the potential partners a year ago that “You have given us all the technology, now we can do it ourselves.” Another source, close to Total, said that the possible technical risks are outweighed by the advantages that Gazprom will receive from preserving its resource base. And the European partners n Stockman can still participate as subcontractors. He noted that Total would be appropriate to build a liquefied natural gas plant and the Norwegian companies to lay pipes and drill underwater. That source thought that the Norwegians would agree to that model. Representatives of the Norwegian companies say that they will not be interested in participation in Stockman without access to its resources, however. Analysts note that Russia is using the same scheme that Iran is using at the Southern Pars deposit. Valery Nesterov from Troika Dialog thinks that dissatisfaction with product sharing in the Sakhalin 1 and 2 projects has led the state to reconsider the development of its resources base. Since it was originally proposed to develop Stockman on a product-sharing basis, and Gazprom wanted to sell the gas at a price that suited it, the project had to be brought onto the level of national taxation.
In any case, Stockman will not supply gas to Europe for quite a while. Nonetheless, Kommersant has learned, Putin will confirm today at a meeting with Merkel that Russia is guaranteeing Germany an additional annual delivery of 25-45 billion cubic meters of gas for 50-75 years. In return, Russia will suggest that Germany speed up the establishment of “a common energy territory,” that is, synchronize the German and Russian energy systems.
Kommersant has learned that Putin will propose attracting the Germany concerns Siemens, RWE and E.ON to develop the fuel and energy sector and implement (through large-scale German investment) the integration of Russia into the energy systems of the EU. Kommersant has learned that Siemens has already expressed its willingness to participate in the Russian project. In connection with German plans to stop coal production by 2018 and shut down a number of atomic generators, Russia is prepared to increase supplies if Russian coal to the German market significantly in exchange for supplying Russia with modern German mining equipment.
The energy alliance requires joint action, and Putin has things to ask of Merkel. Moscow is very annoyed by Polish support of a pan-European cooperation agreement on energy policy. The new Polish government is concerned with the sharp fall in income from transit that will take place if gas supplies to Europe through Poland are reduced. Therefore, Warsaw has politicized the issue, lobbying (with the backing of the U.S.) for an “energy NATO” for Eastern Europe. One of the main Russian proposals that will be made at the meeting is joint opposition to Poland's idea. Last week, Russian Foreign Ministry Sergey Lavrov tried to convince Polish President Lech Kaczynski and his twin brother Polish Prime Minister Jaroslaw Kaczynski to join instead of fight. However, Polish Foreign Minister Anna Fotyga repeated that she saw “no possibility to join Nord Stream” and considered the project “a threat to Poland's energy security.” Polish media reported that the RosUkrEnergo company would cut off supplies to Poland of gas that it had contracted for. RosUkrEnergo denies those reports.
It is still not known how Merkel will react to Putin's proposal to form a Moscow-Berlin energy axis. While it means guaranteed supplies of Russian gas to Germany for decades to come, it is also an alliance with a country that literally yesterday tore up all agreements on energy security made at the recent G8 summit and practically withdrew into energy isolationism. Putin has nowhere else to go. As of today, Merkel is the last major world politician that Russia and Gazprom have not had a falling out with. Alliances with the U.S., China, France, Norway or Italy seem unlikely.

Thursday, October 05, 2006

Kremlin Reiterates Plans to Uphold PSAs, Slams Operators for Cost Overruns

Arkady Dvorkovich04.10.2006 MosNews - Russia is not seeking to oust foreign oil majors operating big production sharing deals, but will not agree to massive cost overruns at these projects, head of the Kremlin’s economic research department said on Wednesday, Oct. 4. “Production sharing agreements are safe if the conditions of these agreements are observed,” Arkady Dvorkovich was quoted by Prime-Tass as telling reporters. He noted that Russia has no plans to reconsider conditions of production sharing agreements and said that the country expects the same from the foreign participants of these agreements. At the same time the Kremlin expert said that the state was particularly concerned by Royal Dutch Shell’s request to allow it to double costs to $20 billion at its Sakhalin-2 project. “It was obvious from the beginning that the Russian side would never agree with this,” he told a conference.

Gazprom Bypasses Cartels Laws

AustriaOct. 02, 2006 Kommersant - Austria has become the first E.U. state, where Gazprom has applied new procedures for shipping the gas. This move will allow the monopoly to maintain 60 percent in the gas consumption in Austria without breaching the cartels laws there.
Vice Chairman of Gazprom Management Committee Alexander Medvedev, OMV CEO Wolfgang Ruttenstorfer, OMV Gas General Director Werner Auli, EconGas Managing Director Michael Peisser, GWH Managing Director Christoph Hiller and Centrex Europe Energy & Gas General Director John Skinner sealed the contracts in Vienna past Friday for shipping to Austria 7 billion cu meters of gas till 2027.
So far, the gas of Russia accounted for 59 percent of consumption in Austria. OMV was buying all gas on border to deliver it to the gas distribution companies or the end users. The situation will change July 1, 2007. Starting from this day, such practice of the company will incur big penalties for breaching cartels laws in force on the liberalized market of the European Union.
For OMV, the Friday contracts gave the chance to split the business. It will proceed with deliveries, while the sale will be the concern of EconGas (OMV holds 50 percent, and the remainder is shared by some independent companies of Europe), Centrex Europe Energy & Gas (Gazprombank owns 100 percent) and Russia’s-Austrian GWH (OMV owns 25.1 percent, Gazexport has 50 percent and Centrex holds 24.9 percent).

Crude Oil Gets Thinner

Oct. 05, 2006 Kommersant - The prices for crude oil shed to the 10-month minimum Wednesday with a barrel of available Brent costing just $55.13. For Russia, the price decline below $25/barrel could lead to the 40-percent inflation, equal devaluation of ruble and losses of the bank sector of 2 percent to 2.5 percent of the GDP.
A barrel of Urals cost below $53 yesterday, while the price for November futures for Brent and WTI was less than $58. The crude oil lost 27 percent to 30 percent vs. the records hit past July to August.
The reasons of the landslide are numerous. This year is rather quiet in terms of the hurricanes, which drove up crude oil to records past year. The next reason is some stabilization in the Middle East. Moreover, the prices are probably going down on apprehension of the increase in the U.S. reserves of crude oil. And last but not least, the decline in demand could be attributed to the end of the automobile season, as the heating season hasn’t begun yet.
The analysts don’t think today’s reduction will materially affect oil companies of Russia, which retain just 10 percent of the excess profit generated via the export, transfering 90 percent to the budget. But the prices of $25 to $35 per a barrel of Brent could be critical.
Still, the tendency is alarming, the analysts say. According to the outlook of the Strategic Development Center elaborated for 2007 to 2009, the drop in prices to $25/barrel will lead to the 40-percent surge in inflation and equal devaluation of ruble. The rates of the GDP growth are forecasted to sink to negative values (-6 percent). If the cabinet didn’t use Stabilization Fund and proceed with accelerating spending, the budget deficit would reach 7.5 percent GDP, otherwise, it would be 1.5 percent to 2 percent of GDP. The bank system (less Sberbank) would suffer losses of 2 percent to 2.5 percent GDP, requiring the aid of 0.5 percent GDP.

Oilmen to Pass Licenses Easily

Oct. 05, 2006 Kommersant - The lower house of Russia’s parliament, State Duma, passed in the third reading yesterday the amendments to the Subsoil Act that would facilitate handing over licenses for oil fields and deposits of useful minerals and enable to pass them easily from the parent company to its subsidiary and vice versa.
State Duma’s deputies voted Wednesday for amending the Subsoil Act and sanctioned passing licenses “from an entity that is the subsoil user to an entity that is its subsidiary” and vice versa.
Pursuant to the current legislation, the license could be transferred provided one company takes over another or in case of the merger or split-over but if a new entity continues operating under the license agreement. Handing over a license to a subsidiary with all mergers and takeovers duly accomplished may take up to two years today.
The biggest subsoil operators, the oil companies, hailed new amendments. “The news is good,” said LUKOIL spokesman Vladimir Semakov. “There are lots of cases in activities of our company when one of our enterprises has operated on the field, which happens then within the range of actions of another subsidiary.”
The oilmen forecast turnover of licenses will step up once the act is amended. They say that after a while a group of companies will emerge focusing on developing the subsoil that lost its attraction to the biggest companies of the industry.

Oil Company Urges Military to Go to Syria

Map of SyriaOct. 04, 2006 Kommersant - Russia’s North-West Oil Group, NWOG, has become a majority holder in Creditline, a project operator to construct a refinery and petrochemical facilities in Syria. In NWOG, they hope to lure the RF Defense Ministry into the project, which worth exceeds $3.5 billion. NWOG’s hopes are well justified, as the military need a refinery in Syria to ensure continuous provision of fuel to the combat vessels in the Mediterranean Sea.
Russia’s North-West Oil Group, NWOG, has bought out 63 percent in Creditline, a project operator to construct a refinery and petrochemical facilities in Syria. The seller was Russia’s resident Nizami Piriev, who owns Creditline. The respective contract was sealed September 21.
Both NWOG and Creditline confirmed the information but declined to disclose the deal budget.
In February, Creditline won the tender in Syria to construct a refinery of 6.5 million tons annual capacity and 1.4-million ton petrochemical facilities there. The refinery will produce diesel fuel and directly distilled gasoline, while the petrochemical enterprise will focus on making olefin, benzol, polyethylene and polypropylene. The term of the project is five years, and its budget is estimated at $3.575 billion.
For a new holder of Creditline, the prime concern today is to lure authorities into the undertaking. NWOG General Director Yulia Sozina said, first of all, they see this project in light of strategic interests of Russia in the region and are holding preliminary negotiations so that the RF Foreign Ministry and Defense Ministry step in to back up the project. The company is ready to give to authorities an interest in the project or a stake in the company, according to Sozina.
The project is no secret to the military, spokesmen of Defense Ministry confirmed off-the-record, emphasizing they count on its urgent implementation. With a refinery in Syria, the vessels of Russia Navy will have a source of continuous fuel supply in the Mediterranean Sea.

Rosneft Exceeds Credit Line

Oct. 03, 2006 Kommersant -D. Rebrov, N. Grib, O. Pleshanova - Rosneft asked Deutsche Bank and some other Western banks for a loan of $15-20 billion. Rosneft might need these funds in early 2007 to buy the property of YUKOS. If Rosneft succeeds in obtaining the loan, it might limit the possibilities to get loans in 2007 for other Russian companies. Rosneft began talks to attract funds with all of its major Western creditor banks. The money will be used to purchase YUKOS assets. The property of YUKOS, which was found bankrupt, is to be sold at auction before August 2007. Rosneft wants most of these assets which will cost $15-20 billion.
YUKOS bankruptcy commissioner Eduard Rebgun announced competition among appraisers. The winner will be chosen on October 13. The law does not set strict deadlines for appraising and for the auction itself. One appraiser company might need more than a year for YUKOS.
Rosneft First Vice President Nikolai Borisenko confirmed the company is interested in YUKOS assets, and said Rosneft will have to resort to loans. MDM-bank analyst Andrey Gromadin said the assets are worth some $20-23 billion. Alfa-bank analyst Konstantin Batunin estimates the assets at some $15 billion.
Meanwhile, analysts say that if Rosneft obtains $20 billion, it will greatly limit the chances not only of this company, but of other Russian companies as well, to obtain another loan. “Foreign banks have total limits for Russia. All Russian companies usually borrow around $20 billion a year. Extra $10 billion can be borrowed from Russia’s banks,” said Pavel Mamai, analyst of Renaissance Capital investment company. Thus, selling YUKOS next year will practically end other large deals of Russian companies.
The law on bankruptcy allows other scenarios for YUKOS, besides selling it. For instance, it might be acquired by a new investor who pays all the company’s debts, or by signing amicable agreement between YUKOS and creditors. This can be done anytime during the appraiser contest, and then the bankruptcy case will be terminated.

Oilmen Prevented from Paying in Advance

Oct. 04, 2006 Kommersant - Russia’s Supreme Arbitration Court ruled yesterday against advance payment of export duties on oil product at lower rates. As even that ruling of the Arbitration won’t suffice to clarify all issues related to the export duties, the judgers suggested making respective amendments to the Customs Code of Russia. On Tuesday, the Presidium of Supreme Arbitration Court refused to uphold Tyumen Oil Co. (TNK, part of TNK-BP now), which had attempted to pay export duty on black oil in advance at rate, which amount had been lower than the rate existing in time of deliveries. The significance of this ruling of Supreme Arbitration is hard to overestimate. Indeed, it has established a precedent and cleared the conflict of laws related to export duties. Under the Customs Code, an exporter of oil product that uses railway or sea transport for deliveries may settle the duties half a month before the actual shipment. But in time of deliveries, the duties on crude oil/oil product could be higher than they used to be when the payment was made. On August 17, 2004, the Orsk Customs refused to accept from TNK a declaration and settlement of duties for September deliveries. The government’s ruling duly promulgated on August 3 hiked the rates from $37.5/ton to $45.4/ton from September 3, while TNK was willing to pay at rates in force in August, i.e. in time of submitting the declaration. TNK went to the law to recalculate the duties in view of the lower rates and to claim 8 million rubles in damages from the customs, but wasn’t upheld first by the Urals court and finally by the Supreme Arbitration Presidium.

Rosneft seeks bigger presence in Sakhalin

Rosneft Head Sergei Bogdanchikov10-05-2006 RBC NEWS -
The state-owned oil company wants to increase its stake in the Sakhalin-1 oil and gas project
Russian state-owned oil company Rosneft plans to start negotiations with Sakhalin-1 investors Exxon Mobil and ONGC to increase its stake in the project. Analysts say the company could bring its holding to 40 percent if it persuades ONGC to pull out of Sakhalin-1. Rosneft’s initiative is seen as part of Russia’s policy to control the export of Sakhalin gas. According to some sources, Rosneft wants a bigger stake in Sakhalin-1, hoping to boost its profits from the project. In future, they say, the company could spend the money on new assets. Rosneft, Exxon Mobil and ONGC have not commented on the issue. According to RBC Daily, Rosneft hopes to buy ONGC’s stake. Sakhalin-1 is operated by Exxon Neftegaz, in which US oil giant Exxon Mobil has 30 percent, Japan’s SODECO has another 30 percent, India’s ONGC has 20 percent, and Rosneft controls another 20 percent through its subsidiaries RN Astra and Sakhalinmorneftegaz-Shelf. It will be difficult for Rosneft to persuade ONGC to withdraw from the project, analysts say. Sakhalin gas is of strategic important for the Indian company. Its subsidiary ONGC Videsh Ltd. said earlier it could buy the whole of Sakhalin-1 gas and export it to India. ONGC might also be interested in Sakhalin oil. The Indian oil company had eyed Russia’s Udmurtneftegaz, but the company went to Rosneft and China’s Sinopec. Experts blame ONGC’s failure on mistakes in India’s policy. “ONGC was allowed to buy a stake in Sakhalin-1 from Russian companies, while Indian authorities do not let Russian oil producers to Indian resources,” says Natalya Milchakova, chief analyst at the Otkrytiye brokerage. Russia offered ONGC to take a stake in Rosneft in the recent IPO, in return for access to Indian resources, but ONGC refused. ONGC’s 20 percent holding in Sakhalin-1 is estimated at $2.2 billion, which Rosneft could raise quickly. It is said to be in talks with western banks to take out a large loan which it might use to fund new acquisitions. It might use the money to increase its presence in Sakhalin projects. Rosneft may also seek Exxon’s stake in the project, using possible complaints against the project operator as a pretext. Things are similar with Sakhalin-2, with Russian gas giant Gazprom in talks to buy a 25 percent stake in the project. At the same time, Russia’s Natural Resources Ministry threatens to block Sakhalin-2 because of environmental violations. Rosneft has chosen the right time to raise its holding in Sakhalin-1. “The consortium has invested $4.5 billion in the project since 2001. As a result, industrial production began at Chayvo in late 2005,” said Konstantin Batunin, an analyst at Alfa Bank. If talks with ONGC are successful, Rosneft’s profits from Sakhalin-1 will rise by $7 billion, investment consultants at Prospekt calculated. Rosneft’s increased interest in Sakhalin-1 and Gazprom’s interest in Sakhalin-2 reflect the government’s efforts to gain control over gas exports from Sakhalin, observers say. Russia’s law on gas exports, which puts all gas exports under Gazprom’s control, does not apply to gas from Sakhalin projects developed under production sharing agreements. Apparently, this irritates Russian officials.

Urals crude continues to fall on RTS

RBC, 04.10.2006, Moscow 17:27:44 - Urals crude dropped by more than 1 percent on the RTS today. The prices on deals fell below USD55 per barrel. October futures were last trading at USD55.85 per barrel, which is 1.15 percent lower than the closing price at the previous session. The spread on deals was USD54.90 - USD55.85 per barrel today. The low on today's deals with October futures hit a record low for the whole period of their trading on the RTS. Some 13 deals were made on the RTS today against 22 transactions at yesterday's session. The trade volume exceeded RUR4.9m (approx. USD183,314) compared to RUR8.8m (approx. USD329,218) at this time yesterday. Low interest in deals with Urals futures may be attributed to a decline in oil prices on international exchanges.

TNK-BP shareholders not to sell their stocks

RBC, 04.10.2006, Moscow 10:27:41.TNK-BP President Robert Dudley refuted the allegations that the company's shareholders from Alfa Group and Access/Renova were holding talks on selling their shares. The 2005 dividends paid in June hit a record high of RUR131bn (approx. USD4.9bn), which was regarded as implicit evidence of the upcoming sale. On November 15 the holding will hold an extraordinary shareholders meeting to decide on the interim dividend payment. Robert Dudley explained that thus TNK-BP was protecting rights of its minority shareholders. He emphasized that the holding's shareholders supported its long-term projects. Also, an increase in investment from $2.5bn to $3-3.4bn is expected in 2007, he added.

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