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Thursday, May 25, 2006

Bashneft oil co. appoints regional leader's son as General Director

UFA, May 24 (RIA Novosti) - Bashneft (RTS: BANE) has appointed the son of the leader of the south Urals region where it is based as its new director general, the oil company said Wednesday. The Bashneft board of directors appointed Ural Rakhimov, a son of Bashkortostan President Murtaza Rakhimov, and terminated Girman Gabitov's contract as general director. Rakhimov's contract will run for three years, to May 13, 2007. The company did not specify a reason for the change in its top management. Bashneft is Russia's eleventh largest oil company by production, accounting for 2.5% of crude produced nationally. The company produced 11.9 mln tons in 2005 (239,000 bbl/d), with sales revenue reaching 70.853 bln rubles ($2.6 bln).

Tuesday, May 23, 2006

TNK-BP holds back $1.3bn for back tax claims

19.05.2006 Aton Capital – TNK-BP has revealed that it received a $1.3 billion preliminary back tax claim from Russian authorities for 2002 and 2003, writes Vladimir Afanasiev. The company said it held this amount in reserve when it filed its results for this year's first quarter under local accounting standards this week. A company spokesman said TNK-BP has yet to receive the final claim from tax authorities. The current amount of back tax is the result of last year's audit of Russian companies TNK and Sidanko, which became part of the joint venture between UK supermajor BP, TNK and Sidanko's shareholders Alfa Group, and Access/Renova Industries at the end of 2003. The TNK-BP spokesman said the company wrote to the tax authorities immediatly, saying it did not agree with the amount of back tax being claimed. Aton Brokerage in Moscow said that, while the news is “obviously negative, investors are likely to remember that back tax claims against the company of $1.2 billion for 2001 later resulted in a reduced payment of $247 million” following an appeal. The claim also was expected, as BP chief executive John Browne said late last year that TNK-BP would face “further large claims for 2002 and so on”. He also said that such claims “are not unusual” and that BP's experience in other markets suggests that agreements are usually reached on the amount to be paid. Analysts in Moscow do not expect the final amount will undermine the company's financial stability this year. However, TNK-BP said in its report that its net income for the first quarter fell by 28% to $430 million, compared with the first quarter of 2005, most likely because of the rising tax burden and production costs.

Kazakhs Will Hike Gas Price by 33%

KazakhstanTuesday, May 23, 2006 - Bloomberg, AP, Reuters - Kazakhstan has agreed to raise the price of natural gas its supplies to Gazprom by 33 percent, a move that may help to increase output at a field developed by BG Group, Eni and their partners. Kazakhstan agreed to raise the rate to about $60 per 1,000 cubic meters from $45, said Kanatbai Ibagarov, a deputy head of the gas department at the Kazakh Energy Ministry. The agreement was reached Saturday following a meeting between President Vladimir Putin and Kazakh leader Nursultan Nazarbayev. The fuel is supplied to a Gazprom refinery by Karachaganak Petroleum Operating, which is managed by Britain's BG and an oil unit of Italy's Eni. The price agreement, which the two sides struggled to reach, may lead to higher gas output this year. LUKoil, which holds a 15 percent share of the Karachaganak project, expects the partners to approve an increase in production of up to 24 billion cubic meters of gas per year. The new rate will match the prices of gas supplied by other Central Asian countries, Ibagarov said Monday. "It would be better for Kazakhstan to pay for the gas transit and sell the gas independently to consumers, but Russia is not interested in that," he said. The price hike appeared far smaller than that reported Monday in Kommersant, which cited sources close to the negotiations as saying that Russia had agreed to pay $140 per thousand cubic meters. A spokesman for Gazprom was unable to comment immediately on the report. Apparently referring to steps that would partly offset the price hike, Kommersant quoted Gazprom's deputy CEO, Alexander Ryazanov, as saying that the cost of gas for Ukraine would rise as of July 1 from $110 to $130 per 1,000 cubic meters. In January, Russia and Ukraine reached an agreement under which Ukraine would buy wholesale gas from Russia and Central Asia at a blended price of $95 per 1,000 cubic meters.

Russia Ready to Be Europe's Leading Oil and Gas Supplier - Presidential Aide

Igor Shuvalov / Photo from www.vybory.net23.05.2006 MosNews - Russia is ready to assume a leadership role in providing Europe with oil and gas, but it won't use its energy resources as an instrument of political pressure, presidential aide Igor Shuvalov said on Tuesday, May 23. "We are ready to provide Europe with oil and gas in a long-term perspective, and we will assume a role of the leader," he said in an interview with Nezavisimaya gazeta (Independent gazette) published on Tuesday. President Putin's aide went on to say that Russia will continue its expansion further, regardless of whether its European partners like it or not. "If they want to — we can do it together with the European energy companies. But we will lead the way, that is already clear," he said. "We are saying to Europe: you lead in one thing. We have taken up a leadership role in another and we are doing it with a share of risk for ourselves, but so far we are doing it successfully," Shuvalov added. He went on to say that Russia won't use oil and gas as a political instrument of blackmail. "We don't want a situation in which we will say that the market will be this way and not another. We have not used and have no plans to use oil and gas as a political instrument of blackmail," he said. Igor Shuvalov added that in his view it is completely normal that Russia wants to diversify its sales markets, while Europe is striving for diversification of energy sources. "We are saying to them: if you do not agree with our concept of energy security, we will behave in the same way as you do. If you continue to search for other contacts to buy energy sources from third countries, then we will look for other markets, such as building a pipeline to China," the presidential aide said.

Experts Predict End of Oil Boom in Russia

05-22-2006 Kommersant
The Organization for Economic Co-operation and Development (OECD) released research on the state presence in the fuel and energy complex in CIS countries last week, claiming that the share of Russia, Kazakhstan, Azerbaijan, Uzbekistan and Turkmenistan in the world growth of oil supply shrank to 30-35 percent by 2005, compared to 60 percent between 1984 and 2004. The OECD blames it on the regulating governmental policies in Russia and Kazakhstan.
Realizing the oil supply potential of the CIS: The impact of institutions and policies, drawn up by Rudiger Ahrend and William Tompson, focuses attention on the role of five former Soviet countries on the oil market. The experts note that the share of the five nations in the oil supply increase has gone down to 30 percent from 60 percent in 1998, according to early estimates of the OECD. The paper points out to a fast revival of oil markets in Russia, Kazakhstan and Azerbaijan after the collapse of the Soviet Union but says that the process is to come to an end soon.
Experts attribute the slowdown in the supply growth to greater state involvement in the oil industry in Russia and higher taxes in the industry The OECD compares activities of three groups of Russian oil companies – state-friendly (Bashneft, Tatneft, Rosneft), insiders (LUKOIL and Surgutneftegaz) and those controlled by financial groups (Sibneft, TNK-BP and YUKOS) in the course of 2001-2004. The report shows that “financial” companies outpace the other two groups in all respects such as the share of exports outside the CIS, investments in the production and the growth in total production.
Problems of Russia and Kazakhstan, the experts note, play right into the hands of OPEC member-countries and new producers, primarily those in Africa, Latin America and South East Asia who may take the chance of CIS stagnation to satisfy the growing demand on oil.
The experts at the OECD advice Russia to return to tackling basic issues such as taxation, property rights, legal protection and development of the oil industry.

Russian Oil Assets Merge in Canada

05-18-2006 Kommersant
Russia's North-West Oil Group and Canadian Nord Oil International, whose assets are based in Russia, have signed a merger agreement. Nord Oil is to buy out North-West Oil's producing subsidiaries in Saratov Region, setting up the new Northwest Oil Group. The Russian oil company will hold the controlling stake in the new firm.
Ernest Malyshev, president of North-West Oil, and Vyacheslav Makarov, president of Nord Oil International, signed the merger agreement on May 9, Kommersant learnt. Nord Oil is buying North West Oil's two subsidiaries, North-West Oil Group-Saratov and Neftegazenergo. The firms and 100 percent of Nord Oil's stocks are to be included in the authorized capital of the new company called Northwest Oil Group. North-West Oil is to own 59 percent in Northwest, the remaining 49 percent will go to Nord Oil. North-West Oil's president Ernest Malyshev is to become president and director general at Northwest.
North-West Oil Group was founded in St. Petersburg in 2004. Experts estimate the total resources of the oil group at some 7-8 million metric tons. Nord Oil International is registered in Montreal but all its producing assets are situated in Russia. The company's proved and possible resources come to 6.6 million metric tons.
The merger deal will be concluded after it is registered with the U.S. Securities and Exchange Commission next week. Assets of the new joint company are believed to total $1.25 billion after the merger.

Marathon Oil Gives Up Russian Oil

On a Side 05-19-2006 Aton Capital Marathon asset sale. US company in agreement to sell West Siberia subsidiary to Lukoil
MARATHON Oil of the US has entered into a definitive agreement to sell its Russian subsidiary Khanty-Mansiysk Oil (KMOC) to a West Siberian oil producing affiliate of state oil giant Lukoil. Under the terms of the agreement, Lukoil will pay about $787 million, plus working capital and other closing adjustments, Marathon said. The transaction is expected to close in mid-July, subject to government approvals and other closing conditions. Besides KMOC, Marathon will also sell its stakes in two minor oil producers in the region - Paytykh Oil and Nazymgeodobycha. "Since acquiring these assets almost three years ago, Marathon has doubled oil production to more than 30,000 barrels per day, resulting in the creation of substantial value," said Marathon chief executive Clarence Cazalot. "We have elected to monetise the value of these particular assets, while continuing to evaluate other attractive opportunities in Russia," he added. In May 2003, Marathon paid about $275 million to Russian individuals to buy a controlling interest in Khantymansiyskneftegazgeologia, a company with about 250 million barrels of proven and probable reserves and an estimated 900 million barrels of total oil resources in the Khanty-Mansiysk region in West Siberia. Following the acquisition, the company was renamed KMOC and its output doubled under the Western management brought in by Marathon. KMOC has nine operating licences, including three producing fields in the Khanty-Mansiysk region - Potanay, East Kamennoye and Paitykhskoye. Six fields are still under appraisal and development - Galyanovskoye, Middle Nazymskoye, Aprelskoye, Tsentralnoye, Bolshoye and Olkhovskoye, Marathon said. According to Aton Brokerage in Moscow, the implied valuation of the agreement at $3.10 per barrel of proven and probable reserves and at $77 per barrel of current oil production "looks value accretive for Lukoil". Some industry observers in Moscow suggest that Marathon may re-invest some of the proceeds from the sale into a long-discussed joint venture with Russian state-owned oil company Rosneft. The venture is set to explore and develop oilfields in the Timan-Pechora province in Russia's north, where Rosneft is seeking to expand to counter its rival Lukoil.
05-18-2006 Kommersant - by Anna Skornyakova, Natalya Skorlygina
The company sold all its Siberian assets to LUKOIL
American Marathon Oil leaves Russia again after its return 3 years ago. It arranged to sell companies Khantymansiyskneftegazgeologiya, Paytyh Oil, and Nazymgeodobycha, which are owned by American Khanty Mansiysk Oil Corporation, for $787 million to LUKOIL. The Yukos case has seriously shattered Marathon's confidence in Russian economy, so the company decided to give up business in Russia. LUKOIL and Marathon Oil announced their agreement on LUKOIL's buying Marathon's assets yesterday. Beside the $787 million, LUKOIL is to compensate for floating capitals of the purchased companies. LUKOIL told Kommersant that the amount of the compensation is being discussed and will be decided upon by July.
The assets sold by Marathon include over 95 percent of Khantymansiyskneftegazgeologiya shares, and 100 percent of Paytyh Oil and Nazymgeodobycha shares. These 3 companies belong to US-based Khanty Mansiysk Oil Corporation. Marathon had bought Khanty Mansiysk Oil from Shell, western funds, and private individuals for $275 million in 2003. The 3 companies of Khanty Mansiysk Oil own 9 license areas on both banks of the Ob river in the Khanty-Mansi Autonomous Area, where they have extracted 257 million tons by January 1, 2006.
LUKOIL expects to extract more oil and to develop new oil fields. It also intends to join Urayneftegaz, a part of LUKOIL-West Siberia, in the production activity, which will bring over $100 million. According to Kommersant's information, Rostekhnadzor sent Rosnedra, the Federal Mineral Resources Agency, a demand to revoke some of Marathon's oil field licenses. Thus, Rosnedra are to inquire into the companies' compliance with license agreements. However, Rosnedra have already held such inquiry in autumn 2005, and have not discovered any violations.
It is not the first time that Marathon Oil leaves Russia. It exchanged 37.5 percent of Sakhalin-2 project shares for Shell-owned assets of non-Russian business in 2000. However, inspired by oil extraction increase, it bought Khanty Mansiysk Oil Corporation in 2003 and offered to Rosneft to create a joint subsidiary. Severnaya Neft, Rosneft's subsidiary, Khanty Mansiysk Oil, and oil-refining and sales US assets of Marathon might have joined the subsidiary.
Yet, the Yukos case have changed Marathon's plans. The company's financial director Janet Clark said that Marathon will probably make corrections to its business strategy in Russia. "We have not taken into account the constant changes in Russia's financial sector, or the political situation which made us step back and think what is the best way to go on," she said. Paul Weeditz of Marathon Oil did not link the leave of Russia to Yukos. Yet he said: "When we were buying this asset, we planned to develop it, but not to sell."

Tatneft to build petrochemical complex

RBC, 22.05.2006, Moscow 17:53:59 – Tatneft intends to receive RUR34.1bn (approx. USD1.26bn) of Investment Fund money towards the construction of a petrochemical complex in Nizhnekamsk, the Russian Industry and Energy Industry's press service reported. The total estimated cost of the project is RUR130.3bn (approx. USD4.83bn). The statement reads that the ministry has given a positive assessment to Tatneft's project providing for the construction of a production complex to include two oil refineries and one petrochemical plant with a capacity of 7m tonnes of sour crude oil a year, as well as infrastructure facilities.

RTS bourse to launch domestic oil futures at start of 2007

MOSCOW, May 22 (RIA Novosti) - The RTS, Russia's leading stock market, will begin trading ruble-denominated futures for the domestic price of oil and oil products from 2007, RTS Vice President Roman Goryunov said Friday. The RTS had previously announced it would begin trading futures contracts for the export price of oil. RTS President Oleg Safonov said RTS had signed an agreement with Platts, a leading international provider of energy information, on providing price data on which oil futures trading would be based. "Later on we will be able to launch trade and delivery contracts," Safonov said. The ruble-denominated futures will have a settlement period of one month, and a minimum security guarantee on any contract of 10% of its overall value

RTS bourse to start trading oil, oil products, gold on June 8

MOSCOW, May 22 (RIA Novosti) - The Russian Trading System, Russia's premier stock market, announced Monday that it would start trading in gold, oil and oil products on June 8. The announcement comes in the wake of President Vladimir Putin's state of the nation address May 10, when he said Russia, as a leading oil exporting nation, should establish its own oil exchange to trade crude and petroleum products for rubles. "The first trading in contracts for gold will commence in Russia on June 8," the RTS said in a statement. The stock exchange also said it would start trading in futures and options on oil and oil derivatives, including Urals brand, diesel fuel, jet fuel and fuel oil. Trade will be in rubles based on prices calculated by the Platts agency. The settlement period for a contract is one month and the minimum security guarantee on a contract is 10% of its overall value. The derivatives section of the RTS, known by its Russian acronym Forts, will trade futures and options on gold in rubles based on the London Stock Exchange evening fixing rate. The settlement period for a contract is one month and the minimum security guarantee on any contract is 5% of its overall value. The statement said RTS would collect a 1-ruble commission for each concluded contract.

Russia's RussNeft oil company bidding for Israel refinery

MOSCOW, May 22 (RIA Novosti) - RussNeft president said Monday that the Russian oil holding company was bidding for a $380-million oil-refinery in Israel. "We are bidding in the tender to buy a refinery in Israel," Mikhail Gutseriyev said. RussNeft put forward its bid for refinery in February and is now waiting for the tender commission's decision. No deadline has been set for identifying the winner. The oil-refinery, which has an annual production of 5 million metric tons (36.6 million barrels), is near the town of Ashdod in southern Israel. Earlier, the Israeli Finance Ministry said the other bidders were Israel-based Delek Group, Dor Alon Energy in Israel, Ampal-American Israel, Paz Oil and Sonol Israel. RussNeft is a vertically integrated oil holding company, and is among Russia's top ten oil producers. Its recoverable oil reserves exceed 630 million metric tons (4.6 billion barrels).

Friday, May 19, 2006

Rosneft's IPO Likely to Precede G8 Summit

Friday, May 19, 2006 The Moscow Times – By Stephen Boykewich - State oil giant Rosneft's long-awaited IPO could take place a day before the G8 summit, a banker working on the deal said Thursday. The July 14 date — which was reported by Vedomosti, citing sources familiar with Rosneft's plans — "is consistent with what's been discussed so far," a banker working on the IPO said, speaking on condition of anonymity. The timing would have serious political significance, coming the day before Russia hosts the July 15-17 weekend summit of Group of Eight leaders in St. Petersburg. Russia chose the theme of energy security to highlight its role as a guarantor of global energy supplies but has been rocked by controversy this year as Europeans have questioned Russia's reliability and senior U.S. politicians have accused it of using energy as a political weapon. The banker said that an IPO target price of $8 billion, reported by Vedomosti, was also consistent with plans discussed inside the company. Officials had previous given target figures as high as $20 billion, which would have made the IPO the largest in history. The banker said $8 billion was "about what is required to replay the loans, but of course it will depend on market demand. The company has refinanced its debts, and with oil prices where they are, they don't need as much as some people have speculated." The highest projected prices "never came from the company anyway," he said. The IPO is intended primarily to pay back a $7.5 billion bridge loan to holding vehicle Rosneftegaz that let the Russian government gain majority control of Gazprom last year. The banker also confirmed Vedomosti's report that $3 billion of the IPO would be aimed at small domestic investors in a so-called "people's IPO" organized by state-run Sberbank. In charge of the people's IPO is Bella Zlatkis, deputy chair of Sberbank's board of directors. Zlatkis spent 34 years at the Finance Ministry, and was deputy finance minister when she moved to Sberbank in May 2004. Zlatkis could not be reached for comment Thursday. Rosneft spokesman Nikolai Manvelov also declined to comment, saying that "all questions concerning Rosneft's IPO are the responsibility of the company's board of directors." The people's IPO is likely a way of raising the company's profile in the eyes of ordinary Russians by giving them a chance to profit, MDM oil and gas analyst Andrei Gromadin said Thursday. Gaz de France used a similar scheme during its partial privatization in 2005, giving retail investors the chance to buy shares at a slight discount before they began trading on the Paris Eurolist market. The French "people's IPO" was particularly popular after the share price jumped nearly 30 percent on the first day of trading, Gromadin said. Rosneft's equivalent "is probably an attempt to achieve the kind of popularity Gazprom has," Gromadin said. The pre-G8 timing is almost certainly intended to muffle foreign criticism by staging a de facto vote of confidence in Russia's energy sector, Gromadin said, though he added it remained to be seen whether the date was a realistic one. In addition to ongoing complications surrounding Rosneft's plan to consolidate Yuganskneftegaz, the RTS has suffered its longest drop in value in two years, falling for seven sessions in a row. "In the present situation, when there's been a fairly strong market correction, it will be very complicated to do the roadshow," Gromadin said. "If you want to give the market a positive spin in June, even with these oil prices, the chances of success are going to be somewhat reduced."
• Gazprom has again delayed announcing its foreign partners for developing the $20 billion Shtokman gas field.
• Energy and Industry Minister Viktor Khristenko said Thursday that partners would be named "this summer," Reuters reported, a day after Gazprom deputy CEO Alexander Ryazanov said the decision would be made by the end of May.
• Growing state intervention in the energy sector risks damaging Russia's ability to satisfy rising world oil demand and may force consumers into the arms of the OPEC export cartel, the OECD said in a report on Thursday.

Thursday, May 18, 2006

Study on Sakhalin-II costs to be finished in summer

ST. Petersburg, May 18 (RIA Novosti) - Expert analyses of the rising costs of the giant Sakhalin II energy project should be completed over the summer, Russia's energy minister said Thursday. "We are conducting an assessment of the Sakhalin-II project in relation to increased capital investment [in the project], the rising cost of the project and the initiative proposed by an investor," Viktor Khristenko said, without giving a specific timeframe for the assessment. Under the project, Sakhalin Energy is developing two vast offshore fields off the island of Sakhalin in Russia's Far East that hold estimated recoverable reserves of 150 million metric tons of oil and 500 billion cubic meters of gas. Sakhalin Energy, 55%-owned by Royal Dutch/Shell, previously said it was considering raising the costs of the second stage of project development from the initial $12 billion to $20 bln. The second stage includes gas production and liquefaction at a new liquefied natural gas (LNG) plant on Sakhalin with projected annual capacity of 9.6 million tons. Other partners in the project include Japan's Mitsui (25%) and Mitsubishi (20%). Khristenko also said energy giant Gazprom would this summer finalize its choice of partners for development of the Shtokman gas field off Russia's Arctic coast that holds an estimated 3.2 trillion cubic meters of natural gas and 31 million metric tons of gas condensate. A shortlist of companies competing to get in on the project unveiled last September includes Norway's Statoil and Norsk Hydro, France's Total, and U.S. giants Chevron and ConocoPhillips. "The Shtokman [project] is unique not only because of the choice of partners for its implementation," Khristenko said. "It is also unique from a technical standpoint in terms of its production technology, logistics and refinery techniques."

Monday, May 15, 2006

Total Still Hopeful on Shtokman

HomeMay 16, 2006 Reuters - PARIS - Total is still hoping to become one of the two or three companies that will develop the Shtokman gas field in the Barents Sea, the French firm's chief executive told a French newspaper. "Total is not out of the game," Thierry Desmarest said in an interview published in Les Echos on Monday, shrugging off any speculation of disagreements between Total and the Russian authorities. "Unlike what has been written here or there, negotiations are still ongoing and going well with Gazprom, which will soon choose two or three companies from a shortlist, which we are part of," Desmarest said, adding though that the project was not a "walk in the park," as it was technologically challenging. Gazprom has shortlisted five bidders -- Total, Norway's Statoil and Norsk Hydro and U.S. firms ConocoPhillips and Chevron.

Sibneft Changes Name to Gazprom Neft

May 16, 2006 - The Mocsow Times - By Valeria Korchagina - Shareholders in Sibneft have voted to rename the oil company Gazprom Neft and move its corporate address to St. Petersburg, Sibneft said in a statement Monday. By Monday, the new Gazprom Neft logo had already appeared at the entrance of Sibneft branch offices in St. Petersburg. The company's headquarters could also eventual move to the northern capital, although only in several years, a Sibneft spokesman said. Sibneft is currently registered in the Omsk region, in Western Siberia, where most of its production takes place. Its headquarters are located in Moscow. The long-expected decision, taken at an extraordinary shareholders meeting on Saturday, follows gas monopoly Gazprom's acquisition of Sibneft for over $13 billion in October 2005. The move is also seen as a major victory for St. Petersburg Governor Valentina Matviyenko, who has been trying to lure big businesses and government bodies to the country's second-largest city. "There will finally be a big taxpayer in our city of 5 million," Matviyenko said Monday, according the city administration's web site. Gazprom will in the next few years build a new office complex on the shores of St. Petersburg's Neva River, Mativyenko said. Between 2003 and 2005, Sibneft paid between 8 billion rubles ($300 million) and 12 billion rubles in taxes each year to the Omsk region's budget, Omsk Governor Leonid Polezhayev said in an earlier interview, Interfax reported. Sibneft paid part of its profit tax to the regional coffers. The government is apparently working on ways to compensate the Omsk region for some of the pending losses, as is Gazprom. The Sibneft brand, however, is not destined to disappear completely. The logo and the name will be retained for Sibneft's retail operations and the company's filling stations.

Gasoline Prices

05-15-2006 Kommersant - American consumers became apprehended in April that a gallon of gasoline in the U.S. surpassed the notch of $3, up to $3.2, which is €0.67 per liter, just like after Hurricane Katrina. Interestingly enough, gasoline became more expensive in other leading nations. A liter of gasoline cost €1.5 in France in this period, €1.38 – in the UK, €1.35 – in Germany and €1.3 – in Italy, according to Reuters. Gasoline prices were lofty in developing countries as well: €1.1 – in Israel, €0.91 – in Kenya, €0.81 – in Peru and €0.53 – in Russia. Gasoline remained relatively cheap only in Egypt (€0.15) and Saudi Arabia (€0.12).

Sibur petrochemical giant to secure $37-mln loan from ING Bank

MOSCOW, May 15 (RIA Novosti) - Sibur, Russia's leading petrochemical company, said Monday it would secure a credit line of 27 million euros ($34.6 million) from Netherlands-based ING Bank N.V. for equipment imports. The Siberian-Ural Petrochemical and Gas Company (Sibur), which is 100% owned by Russian energy giant Gazprom (RTS: GAZP) and subsidiary Gazprombank, said in a statement that the eight-year unsecured loan would be offered on "attractive terms." The company said it intended to develop cooperation with ING Bank and several other Western banks.

Rosneft state oil co. says proven reserves are 18.9 bln barrels

MOSCOW, May 15 (RIA Novosti) - Rosneft said Monday its proven reserves as of December 31, 2005, were 18.9 billion barrels of oil equivalent, including 14.9 bln barrels of crude and 691 bln cubic meters of natural gas. International auditors DeGolyer and MacNaughton estimated the state oil company's likely and possible reserves at 10.9 billion and 9.8 billion barrels of oil equivalent, respectively. This includes 8.3 billion barrels of oil and 15.7 trillion cubic feet of natural gas. A statement on the Rosneft Web site ahead of the audit said the check would be carried out March 15. DeGolyer and MacNaughton also estimated the company's reserves given contingency on the success of geological exploration in a number of upcoming projects, including the Sakhalin shelf, the western Kamchatka shelf, the Vankor oil-and-gas fields, and fields in Krasnoyarsk Territory in central Siberia. Factoring in the probability of successful geological exploration, forecast resources were put at 7.7 bln barrels of oil equivalent, including 7.2 bln barrels of crude and 2.8 trillion cubic feet of natural gas. Rosneft said it hoped forecast resources would be eventually upgraded to proven, likely and probable reserves as a result of successful exploration and development of these projects.

Friday, May 12, 2006

Rosneft to invest $1bln in Siberia's Vankor deposit in 2006

KRASNOYARSK, May 12 (RIA Novosti) - Rosneft plans to invest $1 billion to develop the Vankor oil and gas field in Siberia this year, and launch production in fall 2008, a company vice president said Friday. Stepan Zemlyuk said oil from the Vankor deposits will be pumped to the East Siberia-Pacific Ocean pipeline, an ambitious multibillion-dollar project to send Russian hydrocarbons to energy-hungry Asia-Pacific region countries that will come online in 2008. Speaking at a regional economic forum, Zemlyuk said that under current plans the deposit, in Krasnoyarsk Territory, is expected to yield around 19 million metric tons annually (382,000 bbl/d), but that the 13 licensed sites surrounding the deposit could bring total production up to 50 million tons (1 mln bbl/d). "If we manage to implement the project in this way, we will be looking at a production level of 50 million tons, which will be far more lucrative," he said. The state-owned oil company has been working at the field for more than two years, investing 2 billion rubles ($74 million) in 2004 and roughly 6 billion rubles ($222 million) in 2005. The company's next project will be the East-Sugdinsk deposit in the Katangsk district of the Irkutsk Region, for which Rosneft acquired the subsoil license in mid-December 2005 for 7.47 bln rubles ($276 mln). East Siberia and the Far East are currently Russia's most promising regions for hydrocarbon production, Zemlyuk said. The Vankorsky oil-and-gas field, discovered in 1988, is in the Turukhansky Region of the Krasnoyarsk Territory, 130 km west of the river port city of Igarka. Prospecting conducted in 2004 indicated recoverable oil reserves of 41.5 million tons for C1 category and 185.4 million tons for C2 category , with gas reserves of 28.2 billion cu m (C1) and 61.6 billion cu m (C2).

Investment prospects high for Russia's Far East

RBC, 12.05.2006, Krasnoyarsk 09:29:41 – Investment in the development of Russia's Far East may reach $230bn within 10 years, Governor of the Krasnoyarsk region Alexander Khloponin said opening an economic forum in Krasnoyarsk. Comparing the development of Siberia and the Far East to that of South-East Asia as a whole, he pointed out that the volume of annual investments in Russian regions was behind by a factor. Meanwhile, according to the Governor's assessment of business' interest, some 100 projects were found capable of attracting up to $230bn.

Rosneft unified IPO set for Q3 or Q4 - economics ministry

KRASNOYARSK, May 12 (RIA Novosti) - Rosneft will issue additional shares and sell existing shares within a single initial public offering in the third or fourth quarter of 2006, the economics ministry said Friday. "The floating price must be unified," Deputy Economic Development Minister Kirill Androsov said. Androsov said the number of shares to be traded on the stock exchange and the conditions of the IPO still remained undecided. Rosneft originally planned to launch IPOs on Russian and foreign trading floors in the third quarter of 2006. Androsov did not say how much the company expected to raise through the IPO, but said that the money would be used to clear a $7.5 billion debt of Rosneftegaz, a state-owned company that holds 100% minus one share in Rosneft. The remaining share belongs to the Federal Agency for the Management of Federal Property, which owns 100% of Rosneftegaz stock. Rosneftegaz borrowed the money in 2005 to buy a stake in Gazprom under the gas giant's partial share liberalization plan in order to increase the state's share in the energy giant to a controlling block. Rosneft has a charter capital of 90.92 million rubles (about $3.3 million), and Ordinary shares have a face value of 1 ruble each. Under rules set by Russia's financial markets watchdog, no more than 70% of the overall IPO value, or 12% of Rosneft shares, can be floated on foreign markets. Leading foreign companies would therefore only be able to buy minor share blocks in Rosneft, and would not be able to take part in running the oil company, while the state would retain at least 70% of the oil company's shares.

Wednesday, May 10, 2006

Sakhalin Island: Journey to Extreme Oil

May 9, 2006 - Business Week -
Big Oil's future lies in such forbidding places as Russia's Far East
By Stanley Reed on Sakhalin Island
Summary prepared by Hayk Sargsyan of CDI
With their home reserves depleting fast, the big Western giants are increasingly compelled to go to any extreme to find new oil and gas. Sakhalin Island is about as extreme as they come. The 600-mile-long strip of mountains and forests off Russia's Far East is as good a vantage point as any to see the international oil industry's future and the challenges it faces. Big Oil is having to place ever bigger bets to get the reserves it needs. As a result immense new landmarks - drilling platforms, pipelines, and liquefied natural gas facilities -- are rising through the mists of this forbidding island. An estimated 45 billion barrels of oil equivalent lie beneath the icy seas off its shores, a figure rivaling what remains in the U.S. or Europe. But developing those resources is proving lengthy, difficult, and expensive. Cost overruns have been huge, and no one knows if the Russians will end up controlling the assets now being built.
Clearly, this is a game for the big boys only - Shell (RD ), ExxonMobil (XOM ), and BP (BP ) - and even they are struggling to get Sakhalin right. Operations of the island's biggest player, Royal Dutch Shell PLC, stretch all the way from the island's barren northeastern shore on the Sea of Okhotsk to the regional capital city, Yuzhno-Sakhalinsk, and further south. Shell is a 55% partner in Sakhalin Energy Investment Co., a controlling stake it picked up when Marathon Oil (MRO ) Corp. bailed out in 2000. Shell's other partners are Mitsui & Co. and Mitsubishi Corp. Together they are building and operating Sakhalin II, a batch of five or six projects each costing a billion dollars or more and employing 17,000 people. Shell has hurt its reputation with investors and with its Russian hosts by letting the costs of the venture soar. In 2005, Shell announced that the price tag for the main phase of Sakhalin II would double, to $20 billion.
There's a lot at stake. Oil and gas from beneath three platforms off the island's northeast coast will be pumped onshore by pipeline and sent 500 miles south to the tip of the island. There the oil will be loaded into tankers and the gas supercooled in giant liquefied natural gas plants, to be shipped to energy-hungry Japan and South Korea, and probably to China. Some gas will also pass through a terminal in Baja California, Mexico, and on to the West Coast of the U.S.
If successful, the project will confirm Sakhalin's stature as a major new energy province and transform Russia into a key supplier to Asia. Sakhalin II will also be Russia's first ticket into the game of liquefied natural gas, a hot area of the energy industry these days. Altogether, Sakhalin II boasts 4.5 billion barrels of reserves. Shell expects to be producing 185,000 barrels a day of oil plus condensates from gas and 467 billion cubic feet per year of gas by 2008.
Just getting to Sakhalin, and to Shell's operations, is challenging in itself. The island is located seven time zones, and a nine-hour flight, from Moscow. That's the first part of the journey. Expatriate oil workers and visitors then board the train that runs north from Yuzhno-Sakhalinsk to Nogliki, the snowy gateway to the offshore oil fields. Sakhalin Energy maintains its own sleeping car with wood paneling, rugs, and burly, tattooed guards to fend off bandits. Passengers board in the evening and toss and turn on narrow bunks in steamy cabins while the train bumps and clatters for 15 hours through the snowy wastes. Sakhalin Energy's operations in the north are so remote that it had to build a 43-mile road to get there. Bears roam the woods, and the weather is so bad that construction manager John Burn hires 70 people to keep the area clear of snow and ice six months a year.
The pipeline system that Sakhalin Energy is building is no less complicated. Two conduits - one for gas and one for oil - are being buried in mountainsides and other rugged terrain and will cross about 1,000 streams and rivers on the way south. Many of the waterways are spawning sites for salmon, posing an environmental challenge. In special cases Sakhalin Energy uses sophisticated drilling to tunnel under streams. But the company has run into trouble with sloppy local contractors who rely on their instincts to do things their way, managers say. Because Sakhalin lacks a high-tech local oil industry, Sakhalin Energy must import just about everything, including oil platforms built in South Korea and towed across the Sea of Japan. Shell had hoped to turn to Russian suppliers for pressurized tanks and other equipment, but these proved "useless," says a senior Shell executive. Even so, Shell has channeled some $6 billion in work to Russian contractors for building roads, pipelines, and other jobs.
Sakhalin Energy is also responding to the demands of indigenous peoples. Numbering about 3,500, they live mainly in the north and protested vigorously against the company's construction projects there. So Sakhalin Energy is spending $1.5 million to bolster enterprises, such as fishing and dog-raising. Considering the billions that Shell stands to gain from Sakhalin II, the indigenous peoples and Zlivko are minor worries. The bigger issue is the Kremlin. Everyone from President Vladimir V. Putin on down is complaining about cost overruns. That's because under the production sharing contract, signed in 1994, Russia will start making serious money only after Sakhalin Energy recovers its costs. Up to then, the company pays just a 6% royalty on revenues. After that, Sakhalin Energy will get 90% of the profits until the project shows a 17.5% return. Income taxes will be 32%. "If they can't develop the project at the original costs, perhaps we should bring in another operator," gripes Vladimir Efremov, chairman of the Sakhalin parliament.
To smooth relations with the Kremlin and gain a strong local partner, Shell last year agreed to swap 25% of its controlling stake in Sakhalin Energy to the powerful state-owned gas giant, Gazprom. In exchange, Shell receives a 50% stake in a Gazprom field in western Siberia. Teaming with Gazprom should give Shell some political protection for now, but how much the government might want to up the ante later is a big question.

Russian Finance Minister Kudrin: Russia may declassify some oil deposits within 2-3 years

Russian Finance Minister KudrinMay 2006 - Interfax - Russian Finance Minister Alexei Kudrin tells Interfax about the government's plans in the financial-economic and social sectors.
Russia may declassify part of its reserves of oil, gas and other minerals in two or three years, Finance Minister Alexei Kudrin told Interfax. "In all extraction sectors there is a certain level of reserves, which are classified, but some of them need to be declassified and brought into circulation," he said. The minister said that the declassification of part of mineral resource reserves will increase the capitalization of Russian companies and the Russian market. "And the main thing, it will let the world have a clearer picture of real mineral resources, including of oil and gas, which may have a positive influence on price stabilization," the minister said. He said that the issue of declassifying part of reserves is related to Russian initiatives at G8 meetings, the next of which will take place in St. Petersburg on June 9-10. "When among key issues at the G8 meetings Russia proposed the need to set up a more transparent fuel market, this also relates to the need to have more exact information on world oil and gas reserves," he said. "Therefore other countries should also take steps towards declassifying," Kudrin said. Talking about Russia’s plans about its membership of the World Trade Organization (WTO), Kudirn said Russia has to join the WTO, but should only do so on acceptable terms. "We can't decide not to join the WTO in principle, but we will hold as many talks as necessary. We're talking about acceptable terms," he said. "If we don't agree on them now, we will do so in a year, or two or three," Kudrin said. In touching on Russia's position concerning banks and insurance companies, Kudrin said that Russia is not ready to allow foreign banks to open direct branches. "We are also in difficult talks on other issues and have not made any decisions yet," he said. Russia needs to join the WTO and it won't be possible to double GDP without doing so, Kudrin said. "If we don't join the WTO, we will lower the rate of economic growth over the next few years," he said. "It's in our interests to join the WTO and I'm confident that this is in the interests of the entire world, therefore I'm optimistic about the prospects for resolving this issue," he said. Kudrin also said Vneshtorgbank (VTB) could issue retail bonds this year. Russia is planning to set up a special system to offer financial services to individuals and issuing VTB bonds will be one of these projects, he said. "We are mainly talking about government savings bonds, but are planning to issue corporate retail bonds," Kudrin said. "We will implement one such project with VTB this year," he said, but did not comment further. He said that Russia is planning to put forth an initiative to set up a system to provide financial services to individuals at a G8 meting in St. Petersburg on June 9-10. It will also propose a wider program to implement a program of financial education for individuals. "I would call this initiative 'financial literacy'. The goal is to significantly improve people's financial education and improve their literacy in financial matters," Kudrin said. He said that few people know how to get mortgage loans, fill out a tax form or transfer money. Most people do not know how to keep their savings in securities and what financial instruments exist to make money. This financial literacy initiative will help people invest, including by buying shares, for example in Gazprom, Kudrin said. "This will give every citizen the possibility to invest and get a good yield," he said. The lifting of restrictions on foreign currency operations in 2007 will not lead to a drastic change in the exchange rate of the ruble, Kudrin said. "We are not expecting any fundamental changes in the market because we are constantly weakening the foreign currency regime and we don't see any sharp changes in the exchange rate of the ruble," he said. There will be two contradictory tendencies once foreign currency restrictions are abolished, Kudrin said. On the one hand, Russian individuals and companies will get a more liberal regime to invest in Western companies and will be able to keep resources on accounts in foreign banks and conduct operations through them without getting any kind of permission, he said. "Things will be more liberal and some people will take advantage of this, of course, therefore the possibility will arise of capital outflow," Kudrin said. "On the other hand, Russia's investment climate is very attractive now, therefore capital is coming into Russia," he said. However, there will not be any sharp fluctuations in the exchange rate, he said. In touching on the recent behavior of the U.S. dollar, Kudrin said that everyone has concerns about the dollar. The Swedish central bank announced recently that it had increased the euro's weight in its reserves, and China did the same before that, Kudrin said. "Of course, Russia is taking into account all risks," he said. Strengthening the Russian ruble is having a negative effect on economic growth, Kudrin said. "If we hadn't strengthened the ruble, economic growth would have been higher," he said in commenting on research by the Economic Expert Group which found that a stronger ruble is good for the economy on the whole. "I don't agree entirely. Strengthening [the ruble] has a clear [negative] influence on economic growth, which is why China is not strengthening the yuan," Kudrin said. He said that China has other reasons for economic growth that are connected to a cheaper workforce, stronger investment conditions, and a higher level of investment guarantees than in Russia. "But, on the whole, if the ruble hadn't been strengthened so quickly, we would have had more possibilities for economic growth," Kudrin said. He said that Russian economic growth was 7%-7.3% recently, but will be around 6% this year. "The slowdown in economic growth is not only due to a stronger ruble, but its influence is beginning to be felt," Kudrin said. Russian imports grew to $116 billion from $94 billion in one year, he said. "A 25% growth in imports is a lot, especially amid industrial growth of 4% a year," he said. The Russian market is being saturated with imported goods and this is limiting the market segment where Russian-made goods could dominate, he said. Kudrin said that he doesn't see any serious mistakes in the Central Bank's exchange rate policy. "The strengthening that it is undertaking is a result of the government's actions," he said. Russia is getting more and more petrodollars and putting them into the Stabilization Fund, but because the government can't stop spending, the Central Bank is being forced to hold back inflation by additional measures to strengthen the ruble, he said. "This is why the actions taken by the Central Bank are a direct result of the government's actions," Kudrin said.

There is more to Russian economy than oil and gas

May 2006 - RIA Novosti - Moscow by Alexander Yurov –  The basis of the Russian economy is oil and gas: energy brings in about half of budget revenues and the bulk of foreign trade proceeds. Russia's dependence on the energy sector is especially strong now, when global prices are soaring. This has led many economists to believe that Russia's natural wealth causes more harm than good. They say that the country's economy is addicted to petrodollars and has shifted to the raw materials sector, while other sectors are unable to develop. Recent research, however, proves them wrong. In the first months of 2006, oil exports from Russia amounted to 39.1 million tons, up 4% from the same period last year, according to the Federal State Statistics Service. At the same time, oil accounted for only 35% of Russian exports. This clearly shows that Russia does have other sources of income. For example, Russian metal producers last year exported almost 50 million tons of ferrous metals products, an increase of over 6% against the previous year. The industry's foreign currency revenues have grown by 5.3% to $17.78 billion. Although modest in comparison with the oil sector, it made a significant contribution to Russia's exports. Metal producers will soon be able to boost their share in exports. In 2007 Russia and the EU are expected to review their trade agreement, and Russia's quotas on metal supplies to Europe may change. The chemical industry is not lagging behind either. Traditionally, exports to a large extent determine the efficiency of many chemical and petrochemical companies. The Industry and Energy Ministry has recently published a report, according to which chemical exports have been steadily growing in the last three years. Experts estimate that last year exports earned the industry $10.5-11 billion, up 11% against 2004. The timber industry also has a great growth potential. Russia's forest reserves can be matched, perhaps, only by Brazil, which is the leading timber supplier on international markets. The vast expanses of the Russian taiga are a potential source of revenues for the government. If forests are used correctly, they can yield earnings equal to oil and gas exports. At present Russia earns only $10 billion from its timber, while experts estimate the sector's potential at $120 billion annually. To reach this level, Russia has to change the export structure: to shift the focus from lumber to processed timber products. At present the situation is absurd: Russia controls 25% of the world's forest resources, but last year it imported about $3 billion worth of timber products, mainly from neighboring countries, which, except for Finland, are not rich in forests. To change that, the Russian authorities intend to raise export duties on lumber and lower duties on processed timber exports and on timber-processing equipment imports. In addition, the new Forest Code, which is to come into force soon, will further facilitate the development of timber processing in Russia.

Friday, May 05, 2006

Itera profit down in 2005

RBC, 02.05.2006, Moscow 18:58:53.Itera, Russia's gas and oil company, reported a net profit of RUR 1.139 billion in 2005, down 9 percent from RUR 1.253 billion in 2004. The company's pre-tax profit dropped 5.39 percent to RUR 1.68 billion, and its gross revenue decreased 36.62 percent, to RUR 3.85 billion. Itera reported a 45.48 percent increase in revenue, at RUR 30.79 billion. Itera is an independent producer of natural gas in Russia. Its main sales market is the Sverdlovsk region. The company's 2004 net profit stood at RUR 1.253 billion. Its authorized capital is RUR 60 million. Founding shareholders are the Cyprus-based ITERA Holdings Limited (99.99%) and General Director Valery Otchertsov (0.01%).

Transneft reports increase in net profit

RBC, 02.05.2006, Moscow 18:40:17.Transneft, Russia's oil pipeline monopoly, said its net profit increased 5.4-fold in the first quarter of 2006, to RUR 1.54 billion (about $56.47 million at today's exchange rate) from RUR 284.472 million in the fourth quarter of last year. Transneft said it had planned the net profit increase through "an effective distribution of funds to finance a comprehensive program for each quarter, taking into account seasonal factors." Semyon Vainshtok, President of Transneft, said earlier the company hoped to increase its net profit by about 9 percent in 2006, to RUR 60.7 billion. Transneft's 2005 net profit is estimated at about RUR 55.7 billion, up from RUR 43.9 billion in 2004. The company's authorized capital of RUR 6.220 million is divided into 4.665 million ordinary shares and 1.555 million preference shares, with a nominal value of RUR 1 each. The Federal Property Management Agency has a 75 percent stake (100 percent of voting shares) in Transneft, and private shareholders hold 25 percent of preference shares.

Monday, May 01, 2006

Leading British Asset Trader F&C Warns Investors over Planned $15Bln Rosneft Listing

F&C’s logo28.04.2006 MosNews - F&C Asset Management, one of the Britain's biggest investment institutions, took the unusual step on Thursday, April 27, and publicly threatened to boycott the planned London listing of Russia's state-owned oil company Rosneft, which is expected to raise at least $15 billion. Karina Litvack, head of corporate governance and socially responsible investment at F&C, said the initial public offering raised serious questions of governance and legal risk. "Investors should tread carefully when considering investing in Rosneft. The Russian legal regime is opaque and difficult to navigate," she was quoted by the British Financial Times as saying. She added: "We don't pretend to understand it and if we cannot understand something, we won't invest in it. Unless Rosneft can provide us with credible assurances that it has identified, and made adequate provisions for, any liabilities stemming from the acquisition of its Yuganskneftegaz assets, we won't be interested." F&C's statement highlighted how much is at stake for the London Stock Exchange if UK institutions, which make up the bulk of investors in the series of Russian companies that have floated or hope to float in London, decide to follow suit. It also helped explain why Clara Furse, the LSE's chief executive, wrote to the Russian President Vladimir Putin urging him to reconsider the "arbitrary" ban on William Browder, who runs Hermitage Capital Management, one of the biggest investors in Russia, from entering the country. UK investors look on Browder's situation as an indication of attitudes to shareholder rights in Russia. "It gives us a feel for the culture in the home territory," one of them told the paper. "It begs the question whether companies under the government's influence will be managed for the benefit of the government, not shareholders." However, Richard Segal, chief strategist at Argonaftis Capital Management, the hedge fund, said: "I don't think many foreign investors will be too worried about the impact on their investments. These types of events help to explain the Russian risk premium and are already factored into prices." He added: "I can't see letters such as these, open or not, leaked or not, changing the behavior of Russian authorities, at least not quickly. There's quite a long history of foreigners being denied entry or re-entry into the country, permanently or temporarily, even well-connected foreigners." For example, in 1997, American Boris Jordan, a former investment banker who helped set up the Russian stock market and helped found Renaissance Capital, the Russian bank, had his visa revoked. Taru Oksman-Ison, director at Principal Search doing work in the Russian market, said: "There will be more questions [about Russian flotations] but specialists who work in the Russian market will be quickly working the phone and saying that this too will pass." He added: "There is so much action in this area at the moment . . . I don't think it is going to stop the investor base from investing in Russian companies in a significant way. You expect that it will be complex to invest in Russia." Some market observers said intervention by Clara Furse is surprising since it comes at a time when listings by Russian companies have become an increasingly important source of revenue for the LSE. Admission fees for international companies on the main exchange range between 5,000 pounds and 272,000 pounds, depending on the company's market capitalization. For AIM (Alternative Investment Market) companies, there is a flat fee of 4,340 pounds. International companies also pay an annual fee of between 4,000 pounds and 17,000 pounds. The exchange generates additional revenues from trading; the value traded on the LSE's international order book rose 146 percent from the year to March, helped in no small part by the growing interest in Russian offerings.

EU energy commissioner for constructive gas relations with Russia

BRIEFLY BRUSSELS, April 30 (RIA Novosti, Alexander Shishlo) - The EU energy commissioner said Sunday the European Union and Russia should have constructive relations in the gas sphere. "I don't see any reasons to believe that we [the EU and Russia] are in the state of a new Cold War in energy," Andris Piebalgs told a Brussels conference on trans-Atlantic challenges of globalism. He urged Russia to give access to foreign companies to pipelines on its territory.BRUSSELS, April 30 (RIA Novosti, Alexander Shishlo) - The EU energy commissioner said Sunday the European Union and Russia should have constructive relations in the gas sphere. "I don't see any reasons to believe that we [the EU and Russia] are in the state of a new Cold War in energy," Andris Piebalgs told a Brussels conference on trans-Atlantic challenges of globalism. He urged Russia to give access to foreign companies to pipelines on its territory.

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