RusEnergy

10-05-2006 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.