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Friday, May 30, 2008

Ruhrgas chief highlights importance of St. Petersburg forum

ESSEN (Germany), May 29 (RIA Novosti) - The head of E.ON Ruhrgas AG, Bernhard Reutersberg, said on Thursday that the St. Petersburg Economic Forum, to be held on June 6-8 this year, is an important venue for making informal business contacts. "Informal meetings at such forums are very important for strengthening ties between companies," the head of German utilities group E.ON's natural gas subsidiary said. The St. Petersburg International Economic Forum is an annual event held with the support of the Russian president, bringing together politicians and business leaders. "As I will be taking part in the forum for the first time, I find it hard to compare with other similar events. But one thing is clear - the existence of such an ‘economic club' benefits foreign entrepreneurs," he said. E.ON AG, the world's largest investor-owned energy service provider, has close ties with Russian energy giant Gazprom. It is also Gazprom's largest foreign shareholder, with a 6.5% stake. "We have a long and intensive history of cooperation with Gazprom, and hope to develop it in the future," Reutersberg said. The CEO said he looks forward to hearing a speech to be delivered at the forum by Russian President Dmitry Medvedev, Gazprom's former board chairman. The St. Petersburg economic forum traditionally gathers presidents, heads of governments, parliaments and ministers from many countries, and also the international business elite and the chief editors of the world's major mass media and prominent experts. Russian news agency RIA Novosti is the general information sponsor of the forum.


May 30, 2008 - Kommersant - The yesterday’s meeting of TNK-BP BOD was aimed to decide on employment of CEO Robert Dudley and Executive Director German Khan but ended by a scandal. Russia’s holders left the meeting stripping it of required quorum. Formally, the third party is yet outside the conflict, but the RF government is forging an instrument already. A new criminal case is likely to be initiated to extent to both Russia’s and Britain’s managers of TNK-BP, including Robert Dudley. The BOD of TNK-BP was to meet in Cyprus yesterday, said a few sources close to the company’s holders. BP controls a half of the company, while the remainder belongs to AAR consortium of Alfa Group, Access and Renova. That yesterday's meeting wasn’t convened for lack of quorum, said BP’s representative in Russia Vladimir Buyanov. Regardless, the holders met that day to deliberate on strategic development of the company and the discussion would continue, Buyanov specified. During that get-together, sources close to the holders said, the Russians reiterated their desire to ouster TNK-BP’s permanent CEO Robert Dudley. Dudley manages the company in the interests of one holder, BP, AAR explained. BP rebuffed by proposing to dismiss Executive Director German Khan (who is also the company’s holder) together with Vice Presidents Igor Maidanik and Boris Kondrashov. The issue of Dudley’s dismissal was the first on agenda. After the BP spokesmen bluntly rejected that move, the Russians left the meeting, stripping it of any quorum. Formally, no third party is involved in the conflict. But the rumors that Gazprom wanted to buy a stake in TNK-BP gained momentum in spring, while some other sources said Rosneft was eyeing the company. Russia’s Vice Premier and Rosneft CEO Igor Sechin pledged Tuesday that the government wouldn’t interfere in the dispute at TNK-BP. Yesterday, however, it emerged that a new criminal action is being forged for the company.

Thursday, May 29, 2008

TNK executive faces $950 mln back tax charges - source

MOSCOW, May 29 (RIA Novosti) - An oil executive who worked at Russia's TNK before its merger with BP is under investigation for tax evasion exceeding $950 million, an Interior Ministry source said on Thursday. The Interior Ministry's economic security department said earlier on Thursday that an enquiry had been opened into tax evasion by "an executive of a major oil company", but did not give the name of the company or the executive. A ministry source told RIA Novosti that the probe was launched against "A TNK executive who worked at the company before its merger with BP." TNK and BP set up a joint venture, TNK-BP, in 2003, with the British oil major holding 50% in the company. The statement echoes earlier media reports on tax evasion claims for 2001-2003 facing a TNK executive. The charges envision a fine or a prison sentence of up to six years. TNK-BP said it knew nothing of the probe. "The company has no official information on the case," a spokesman said. The Russian-British company has faced a number of back-tax claims in the last few years, triggering speculation that it is being targeted by authorities seeking to bring major oil and gas assets back under their control. In 2006, the oil producer paid nearly $1.5 billion in tax arrears. Analysts interviewed by RIA Novosti on Wednesday said they believed the ongoing dispute between Russian and British shareholders of TNK-BP could lead to the company being bought up by a Russian state giant, most likely Gazprom but possibly Rosneft.

Russian power monopoly bids farewell

Russian power monopoly bids farewellMay 29, 2008 – Russia Today – Russia’s electric power monopoly Unified Energy System, RAO UES, will cease to exist in just over a month. Its head Anatoly Chubais has met the company’s shareholders to assure them the sector has a bright future. In just a few years, UES’s CEO Anatoly Chubais managed to not only reform one of Russia’s biggest monopolies, but also attract billions of dollars into the sector. Speaking to reporters at the company’s last shareholders' meeting on Wednesday, he seemed proud: “Many said we would not succeed. 'You are crazy. It's impossible to attract billion-dollar investments,' they said. ' The state is your only hope,' they claimed.” “As you see, all these doomsayers failed miserably. We got a level of investment previously unseen in any sector of the Russian economy,” Chubais said. Analysts say the reform was necessary if Russia is to continue its vigorous economic growth. When UES ceases to exist in July, its shareholders will receive shares of 23 companies that were part of the monopoly. Seppo Remes, who represents minority shareholders at the company’s board, says the exchange is a good deal for the minorities: “If you compare the market price of those future companies, it’s roughly 50% higher than the share price of UES,” he said. Under the reform, the state will sell all of its generation assets. It will keep the distribution grid and hydro-electric generation, as well as fix the prices. Only about 15 of electricity is currently.

TNK-BP Torn by Conflicts

TNK-BP Executive Director German Khan opposes the limits to overseas expansion of the companyMay 28, 2008 – Kommersant - Russia’s holders of TNK-BP have officially rebuffed the claims of the second co-owner, BP. The AAR consortium of Alfa Group, Access and Renova confirmed the conflict with the Brits that slow down the company’s development on fears of its emergence as a global competitor. If the conflict remains unsettled during two weeks, it may break up the company’s AGM and halt its operation. The AAR consortium that owns 50 percent in TNK-BP officially confirmed yesterday the clashes with the British holder. BP had made the respective statement a day before. AAR that unites Alfa Group (25 percent in TNK-BP) of Mikhail Fridman and German Khan, Leonard Blavatnik’s Access and Viktor Vekselberg’s Renova reported about the clashes with BP that relate to the strategy and tactics of the company’s development. The decisions on the overseas advance of the company are to be made with regard to efficiency of TNK-BP even if this development is competitive to the BP business, the consortium specified. Moreover, in AAR, they think that the balance of Russia’s and foreign personnel in the company should be reasonable and the long-term strategy is to be aimed at training highly-qualified personnel of Russia. Some 150 Brits, whose visas expire in late June, are currently working in BP. Their number may go down to 63 by initiative of TNK-BP Executive Director German Khan. Russia’s holders of TNK-BP have also attempted to replace the company’s president Robert Dudley by Viktor Vekselberg. As a result, Dudley was the first to officially draw attention to the conflict.

Analysts say TNK-BP dispute could end in sale to Gazprom

LONDON, May 28 (RIA Novosti) - The ongoing dispute between Russian and British shareholders of oil company TNK-BP could lead to the company being bought up by a Russian state giant, most likely Gazprom but possibly Rosneft, analysts said. TNK-BP's American CEO, Robert Dudley, recently admitted major differences between Russian and British shareholders in the company's strategic plans, and business daily Kommersant said on Monday that Russian shareholders were planning to replace Dudley with tycoon Viktor Vekselberg. Alexander Kuznetsov, oil and gas analyst at Prospect Investment, told RIA Novosti: "There is a chance that TNK-BP shares will be sold to a Russian company - either Gazprom or Rosneft." He said the sale could include shares of both Russian and British owners. Oil major BP has 50% in the company, Russia's Alfa Group holds 25%, Viktor Vekselberg's Renova 12.5%, and Leonard Blavatnik's Access industries 12,5%. Analysts say a 50% stake in TNK-BP would be worth $17-20 billion. Kuznetsov said: "British and Russian shareholders have different perspectives on the company's future development. BP sees TNK-BP as its subsidiary, which should develop oil production and refining in Russia and CIS countries and should not venture outside this region." "Russian shareholders believe the company should develop not only in Russia, but abroad, for example it should be able to produce crude in Iraq, and sell and refine oil in Eastern Europe. All these projects are in competition with BP, and BP doesn't need this." TNK-BP has come under intense pressure from the Russian authorities this year. In March the Federal Security Service (FSB) searched the company's headquarters and the Moscow office of BP, after a TNK-BP employee was arrested on suspicion of industrial espionage. Last week new searches were carried out at BP's Moscow office. Konstantin Gulyayev, senior analyst at Region Group, said plans to sell the company are at the heart of the dispute between shareholders. "Some of them don't see strong perspectives for development and want to sell their shares, for example to Gazprom, and others have different ideas, and want to develop the company further. I think it is all to do with this," he said. Kommersant reported on Monday that Russian shareholders had already held discussions with BP CEO Tony Hayward on changing the company's management. BP told RIA Novosti that it fully supports TNK-BP CEO Robert Dudley. "As far as Robert Dudley is concerned, BP fully trusts him. He is a proven and experienced oil industry manager with experience in Russia and abroad. The impressive results of his work at TNK-BP confirm this," a company spokesman said. Any disagreements must be resolved through talks between shareholders, the company said.

Shareholders split over sale of UK-Russian oil giant

May 28, 2008 - Russia Today - The major shareholders of British Petroleum’s Russian joint-venture, TNK-BP, are reported to be in conflict over the future of the company. Oil industry analysts are predicting that the firm might finally be sold to a Russian state-run energy giant – most likely Gazprom. Three Russian partners own 50% of the company: Renova Group, Alfa Group and Access Industries. They are planning to replace the existing TNK-BP CEO, Robert Dudley, with the tycoon Viktor Vekselberg, according to Kommersant business daily on Monday. However, BP has told the RIA Novosti news agency it fully supports Dudley. Analyst Dmitry Lyutyagin from Solid Investment told RT the sides are on a collision course. “Whenever there is a major conflict, both sides are aiming to eliminate the other while keeping control of the company. They are hoping a powerful partner, in this case a state-owned giant, would take over their rival’s stake,” Dmitry Lyutyagin said. Gazprom agreed to buy TNK-BP’s Kovytka field last year. Experts say it is eyeing the company itself, at the very least the 50% stake owned by Russian shareholders.

Dudley 'to walk away from TNK-BP'

27 May 2008  – Upstream OnLine – Robert Dudley, the chief executive of BP's Russian venture, TNK-BP, may soon leave his post due to disagreements between the company's Russian and British shareholders, according to reports. Moscow-based business daily Kommersant quoted a source close to TNK-BP's shareholders as saying that two of three Russian billionaire shareholders of the company, Viktor Vekselberg and Mikhail Fridman, complained about Dudley at their meeting with BP's chief executive Tony Hayward in mid-May. They suggested that Dudley should resign and Vekselberg should take his post, the source said, adding that Hayward rejected the suggestion. BP said it backed Dudley to stay. "BP fully supports Bob Dudley's position as president and chief executive of TNK-BP. Mr Dudley is a highly experienced and outstanding industry executive who has consistently managed the business in the interests of all its shareholders, and BP has absolute confidence in him," a spokesman for the UK supermajor said. The spokesman declined to confirm whether Dudley's position came up at the meeting. Another source close to TNK-BP's shareholders told the paper that the issue was still under consideration. TNK-BP was not immediately available for comment. Dudley, who has been the head of TNK-BP since its creation in 2003, acknowledged for the first time that the Russian and British shareholders have disagreements in an interview published by Vedomosti yesterday. Dudley said in the interview that the disagreements concerned investments and the sale of some assets in Russia, a Reuters report said. Today Kommersant quoted Alastair Graham, the leader of TNK-BP shareholders' team at BP, as saying that the disagreements concerned TNK-BP's expansion plans into foreign markets. He said BP, which owns a half of TNK-BP, believed that TNK-BP could be competitive in Turkmenistan, Kazakhstan and Venezuela, but should avoid countries of higher risks, such as Iraq, Uganda, Syria and Lebanon. TNK-BP has been the subject of long-running market speculation that the Kremlin wants a state company, such as gas export monopoly Gazprom, to buy out the Russian billionaires who own another half the company. TNK-BP's Russian shareholders, who apart from Vekselberg and Fridman include billionaire Len Blavatnik, have repeatedly denied any plans to sell their stake. But analysts have said that mounting state pressure over recent months on TNK-BP, including security service's searches at TNK-BP's and BP's offices, are signs that the forced sell-out is approaching.

Russian oil firm Rosneft to start Black Sea exploration drilling

MOSCOW, May 27 (RIA Novosti) - Russia's state-controlled crude producer Rosneft [RTS: ROSN] plans to start exploration drilling in the Black Sea, a company official said on Tuesday. Alexander Svistelnikov, head of the Rosneft division for prospective shelf projects, said the company intended to start drilling in 2009 near Tuapse in south Russia at a depth of 1,000-2,000 meters (0.6-1.2 miles). The oil reserves at the Tuapse stretch are estimated at 4.32 billion barrels, Rosneft said on its website. Rosneft also intends to drill two oil wells at the Black Sea Val Shatskogo offshore oil deposit in 2010-2011, the official said. Svistelnikov said the crude producer also hoped to obtain licenses to develop offshore deposits in the Arctic Kara and Barents Seas. The Rosneft official said the company's strategy to gradually develop territories close to its existing projects along with the Arctic shelf was a promising area.

Russian oil companies to get tax holidays

Russian oil companies to get tax holidays May 26, 2008 - Russia Today - The Russian government has approved tax cuts of $US 4 billion for oil companies from 2009. The reduction of the mineral extraction tax, a key reform for the country’s oil companies, is believed to be the first step towards reviving production growth in the industry. The state collects more than 90 % of oil company profits through corporate and production taxes, including export duties of 65 % on oil sold at more than $US 25 a barrel. That's been great news for Russia's reserves and its economic stability, but bad news for production growth, which has dwindled to almost nothing in the last few years. Analysts say the high taxes have been hampering companies from taking on new challenges. Chirvani Abdoullaev, a senior analyst from Alfa-bank, said: “They were shifting their investments to the easy pickings and leaving behind a lot of oil that is harder to extract, which requires more investment, more technology.” However, the Russian government is now taking steps to change this. Prime Minister Vladimir Putin said: “We should increase the profit amount exempt from Mineral Extraction Tax from $ US 9 a barrel to $ US 15 a barrel.” Russia’s Finance Minister says the country's National Welfare Fund will be worst hit by 4 billion dollar tax cuts. Speaking to Business Today Alexey Kudrin admitted the concessions would strike the 32 billion dollar Fund, which also supports Russian pensioners. He said all other government spending would remain unaffected for “several years”. Other tax incentives are also under discussion and expected to be approved by the country’s parliament by the end of the summer. Many analysts agree that any reduction of the tax burden is a step in the right direction, and Alfa Bank says even the first initiatives could lead to a huge increase in the value of oil stocks - of up to 30 %.

Russian government approves tax cuts for oil firms from 2009

MOSCOW, May 26 (RIA Novosti) - Russia's government has approved a bill to cut taxes for oil companies from 2009, a deputy finance minister said on Monday. "All the measures related to reducing the tax burden will enable businessmen to use free funds for development," Sergei Shatalov said. According to Finance Ministry estimates, the tax cut will grant oil companies 165-175 billion rubles ($6.9-7.4 billion) a year. Tax holidays for on-shelf projects will be offered for 10 to 15 years, the deputy finance minister said. According to Shatalov, tax holidays will be granted for 10 years for companies engaged in prospecting and for 15 years for companies engaged in oil prospecting and production. Meanwhile, tax holidays for the Timano-Pechora oil and gas province in northern Russia and the Yamal peninsula in the northeast Urals will be granted for a term of up to seven years, Shatalov said, adding that a decision on tax holidays will also take into account the volume of crude production at the deposits. Russia's government has also approved a differentiated scale of excise duties on gasoline and diesel fuel from 2009 depending on the quality of petroleum products, Shatalov said. The excise duties will be differentiated depending on the category of gasoline and fuel and their compliance with European standards, instead of the current differentiation by the octane number, the deputy finance minister said. A spokesman for Russia's largest independent oil producer LUKoil said the new tax cuts would enable an increase in annual oil production of 45 million tons (330.75 million bbl), an additional 10% on top of current output. He said that 25 million tons of this figure would come from new regions of oil production, while highly-developed and low-debit deposits would be yielding an additional 10 million tons each. LUKoil currently operates all projects at the Timano-Pechora oil and gas province in northern Russia.

Russia Hikes Crude Export Duty to Nearly $400

May 26, 2008 - Kommersant - Russia hikes the duty on crude oil export by $58 to $398.1/ton from June 1. The respective ruling was inked by Prime Minister Vladimir Putin. Under the government’s ruling of May 22, 2008, the export duty will be $280.5 per a ton of light oil product and $151.1 per a ton of dark oil product. The current duties amount to $340.1 per a ton of crude oil, $241.4 ton per a ton of light oils and $130.1 per a ton of dark oil product starting from April 1, 2008. The amount of $398 is the record duty on crude oil export. The duty is traditionally calculated by monitoring the average prices for Urals. The price ranged from $105/bbl to $113/bbl in late April, when the Finance Ministry deliberated on the duty size.

European energy security under threat

May 21, 2008 - Russia Today - The European Commission wants to limit non-EU members operating on its energy transportation networks. Russia says it won’t be able to guarantee security of supply if the EU approves its so-called “third energy package”. The consequences were widely discussed at the international Gas Forum in Berlin. The energy security that Europe is so concerned about tops the agenda of almost every energy conference. But this time Europe's main gas supplier, Russia, said the security of supply could be undermined by the EU's latest energy initiative. The EC wants to unbundle transportation networks by removing distribution from vertically integrated energy companies and handing control to independent operators. “Long-term contracts are the basis of the security of supply. The third energy package puts these contracts in danger. Can an independent operator guarantee the fulfillment of the long-term supply agreement with Europe?” demands the Head of Russia Gas Society Valery Yazev. The EC says the changes are needed to guarantee all market players free access to the pipeline system and to attract investment. But European energy companies say the initiative may be dangerous. “Gas de France as the company of many other companies of the gas sector with, I would say, with a full support of the French government, has always been opposing the ownership unbundling of the transportation companies within the integrity group. We think this is not a good decision. When you look at the security of the industry itself and in addition to that we think that it is not useful,” commented the Chief Operating Officer of Gas de France Jean-Marie Dauger. According to the new energy package, non-EU companies like Gazprom won’t be able to control any assets in the sector. However, the EU does not specify what level of share holding would represent control. This means Gazprom is taking a risk by investing in European gas transportation with no certainty that it will control its assets.

Lukoil turns on the tap in Belgium

belgiumMay 22, 2008 - Russia Today - Russian oil giant Lukoil has opened its first filling station in Belgium. Russian oil giant Lukoil has opened its first filling station in Belgium. The station was opened as part of the rebranding of assets from JET, which Lukoil acquired from ConocoPhillips. Lukoil is expanding its operations in Europe, and now boasts filling stations in over twenty European countries. The company recently acquired nine retail outlets in Croatia. Lukoil plans to open over 150 filling stations in Belgium.

Medvedev heralds Russia-China deal

chine22 May 2008 - Upstream OnLine - Russian President Dmitry Medvedev said today that Russia and China are close to reaching an agreement on building a pipeline connecting Siberia’s oil fields to energy-hungry China. “We currently have a basic agreement on this and today are at the concluding stage in talks between Rosneft and CNPC (China National Petroleum Corporation), Russia’s and China’s state oil companies,” Agence France Presse quoted Medvedev as saying in an interview posted to the Kremlin’s Web site. Medvedev said there had been “unprecedented, huge growth” in Russian energy exports to China from supplies worth $500 million in 2001 to around $6.7 billion in 2007. The Kremlin chief said joint Chinese-Russian projects for increasing oil-refining capacity in Russia were also under discussion, as were plans for building two major gas pipelines routes from Russia to China. The oil pipeline would be a branch of a bigger 4200-kilometre (2600-mile) trunk line between the Siberian city of Taishet and Russia’s Pacific coast and would run to the Chinese oil hub of Daqing.

Thursday, May 22, 2008

Tatneft Claims $1bn from Ukraine

ukraineMay 22, 2008 - Kommersant - Tatneft has initiated international legal proceedings against Ukraine, claiming $1.13 billion from it in compensation for the loss of control over Ukrtatnafta. Three more parties of the conflict will file similar suits in the near term to materially increase the claimed amount. The analysts are skeptical about this initiative of Tatneft, reasoning that if the company is finally upheld by the arbitration, it will hardly be able to confirm the verdict in Ukraine. Tatneft filed to Ukrainian authorities yesterday the claim for the indemnification of damage caused to it as the holder of Ukrtatnafta. The amount is estimated at $1.13 billion, including mostly the damage resulted from the loss of control over Kremenchug refinery and payment defaults for supplied oil (estimated at roughly $520 million), a source with Tatneft specified. Ukrtatnafta was set up based on the assets of Kremenchug refinery of the annual capacity of up to 18.6 million tons of oil. Tatarstan controlled 28.77 percent in the venture, Tatneft had 8.61 percent, Swiss Amruz Trading – 8.34 percent and SeaGroup International, the U.S., - 9.96 percent. In May of 2007, all stocks owned by nonresidents were written off in favor of the government-controlled NAK Naftogaz that extended its ownership from 43.054 percent to 61.35 percent. The lawsuit of Tatneft is based on Ukraine’s violation of the intergovernmental agreement on encouragement and protection of investments. Russia and Ukraine inked that document far back in 1998. Tatneft is consulted by Cleary, Gottlieb, Steen & Hamilton. The suit was filed in conformity with UNCITRAL and Zurich will be the venue of the trial, a source with Tatneft said. As the lawyers recommended lodging separate suits to all affected parties, Tatarstan, SeaGroup International and Amruz Trading may follow Tatneft’s example in the near term. The source declined to give the overall amount, specifying, however, that it is very big but less than $5 billion. “I think Ukraine will win, as we have the internal court judgements on the issue,” Ukrainian Prime Minister Yulia Tymoshenko declared, making clear that she regards the claim completely hopeless.

Wednesday, May 21, 2008

Oil Industry to Recover from Stagnation

May 21, 2008 - Kommersant - Official statistics released by the federal authority Rosstat for January through April proved more optimistic than the expectations of economic analysts. The industrial output grew by 6.9 percent in the first four months and surged 9.2 percent in April, mostly on engineering and construction industries. Lower decline in production of oil is also the good news of past month. The statistics on industrial output in April exceeded expectations of analysts, who had forecasted the growth of slightly above 6 percent. Yesterday, however, Rosstat reported that the industry stepped up 9.2 percent on year in April (vs. 6.5 percent in March, 7.5 percent in February and 4.5 percent in January), having neared the 10.3-percent record of July 2007. The April performance enabled the industry to catch up with last year’s growth, which was the same 6.9 percent in the first four months of 2007. The impact of processing industries was again the greatest. There, the growth averaged 14.5 percent on year in April, while the car output increased 28.8 percent, production of hydraulic pipes went up 77.6 percent and the tractor output surged 2.1 fold. What’s more, the production of oil manifested the first signs of recovering from stagnation exactly in April. The average daily production is still going down, but the pace is much slower than in the previous months. It dropped 0.4 percent in January, lost 1.4 percent in February, sank 1.6 percent in March and lowered just 0.4 percent in April. In the government, they also stake on the oil recovery. Vice Premier Igor Sechin told Interfax last week that the decline in oil output would give way to the increase by the end of 2008. Sechin supervises the country’s fuel and energy complex and the use of natural resources. So, today’s concern of economists is probably to revise the annual outlooks for industry. “By all appearances, the growth could be above 6 percent,” said Vladimir Salnikov from the Center of Macroeconomic Analysis and Short-Term Forecasting. And it is more than the official forecast of 5.7 percent.

Monday, May 19, 2008

Gazprom extends Korea supply deal

19 May 2008 - Upstream OnLine - Russia’s Gazprom, the world’s biggest natural gas producer, has extended a supply deal with Korea Gas, the world’s biggest buyer of liquefied natural gas, to 2013, it was reported. Korea Gas said today it would continue to work with Gazprom, a state-owned gas export monopoly, to develop gas projects in Russia and to build a LNG plant, Bloomberg reported. Korea Gas is reported to be seeking 1.5 million tonnes of LNG per year from the Gazprom-led Sakhalin 2 project as part of a plan to diversify its energy suppliers. However, first shipments of LNG from the project have been delayed from the second half of this year to 2009. The original 2003 deal between Gazprom and Korea Gas was to expire at the end of this month.

EBRD takes Siberia stake

19 May 2008 - Upstream OnLine - The European Bank for Reconstruction and Development (EBRD) said it would buy an $85 million minority stake in East Siberian oil company Irkutsk as part of its plan to invest in energy efficiency projects. The EBRD, which says improving energy efficiency and boosting agricultural output are key to combatting soaring prices, said the investment would allow Irkutsk Oil Company to cut greenhouse gas emissions from oil fields. "The project is in line with the government's drive to slash drastically the wasteful and environmentally damaging flaring of gas, which, according to some estimates, burns up to 5% of Russia's total gas output," the company said in a statement, Reuters reported. Russian gas export monopoly Gazprom is the world's largest gas producer, supplying a quarter of Europe's needs. "According to the World Bank, Russia flares more gas than any other nation, having in the last decade overtaken Nigeria," the EBRD said. The EBRD will take an 8.15% stake in the holding company for the privately-owned Irkutsk Oil, via a new share issue in a rare investment in the Russian oil and gas sector. The investment values Irkutsk at over $1 billion. The bank did not reveal the names of the owners of Irkutsk, nor did it say whether the company might eventually go public. The firm will cut greenhouse gas emissions by re-injecting gas produced alongside oil instead of flaring it. Russia's government wants oil companies to cut associated gas flaring to 5% of total output by 2011 from around 40% now. Analysts say East Siberia will over time rival Russia's main oil and gas producing region West Siberia, but the country needs to invest billions of dollars into new pipelines and roads. Irkutsk Oil is working jointly with Gazprom on a gasification programme for the Irkutsk region. Gas re-injection will also allow it to boost oil recovery.

Putin backs tax break to boost output

14 May 2008 - Upstream OnLine - Russia’s Prime Minister Vladimir Putin has put forward proposals to grant a seven-year tax break to producers developing fields on Russia’s continental shelf, the Yamal peninsula and Timan-Pechora, in a bid to boost output by 13.7% - 67 million tonnes (1.3 million barrels per day) - by 2015. A Reuters report said a similar tax break is currently available for East Siberian producers. Putin also called on the lower house of the Duma parliament to reduce the mineral extraction tax on oil. Russia produced 491,481 million tonnes last year, a rise of 2.3%. In April, production stood at 9.72 million bpd, a decline from last year.

Putin opens oil export terminal on Baltic

May 15, 2008 - Russia Today - Vladimir Putin has opened a new terminal for the shipment of light-oil products in the Baltic port of Primorsk. The new terminal has a capacity of over 7 million tonnes of oil products a year and will provide Russia with more much-needed export capacity. Previously, much of Russia's oil was exported via Baltic state ports. Attending Wednesday's opening ceremony, Prime Minister Putin said the Primorsk terminal was a vital addition to the industry. “Projects like this drive our oil companies and refineries to modernise production in order to export processed products rather than just raw materials,” said Putin. “Adding the value here will allow us to create more jobs.”

$1bn buys Alekperov top Lukoil spot

12 May 2008 - Upstream OnLine - Lukoil president Vagit Alekperov has become the largest shareholder in the Russian oil company by paying 24.6 billion roubles ($1.03 billion) for 11.13 million shares, increasing his stake by 1.3% to 20.4%. Last year, Lukoil said Alekperov, his wife Larisa and son Yusuf owned 162.381 million shares, or 19.1% of the company’s shares, according to Reuters. Company vice president Leonid Fedun also bought 6.71 million shares for 15.146 billion roubles ($635.3 million), increasing his stake in the company to 9.09 percent from the 8.3 he owned last year. Alekperov and Fedun now have a combined stake of about 30%, which is enough to veto board decisions. US supermajor ConocoPhillips holds a 20% stake in Lukoil, Russia’s second largest oil producer.

Thursday, May 08, 2008

Duo beat Rosneft on Siberian tender

07 May 2008 - Upstream OnLine - A consortium of Russian and Vietnamese state oil firms, ZarubezhNeft and PetroVietnam, has won a tender to develop four oil blocks in west Siberia. The consortium beat Russia’s largest oil producer, state-controlled Rosneft, which also took part in the tender, according to Reuters. The blocks, which consist of 13 fields with total recoverable reserves of around 80 million tonnes of oil, are a part of the Central Khoreiversky deposit in the Nenets region. A source at the Russian company said the consortium is going to start drilling at the new fields in 2008 and can produce 4-5 million tonnes per year in five to seven years.

EBRD buys OGK-5 stake from Enel, controls 5.2%

MOSCOW, May 7 (RIA Novosti) - The European Bank for Reconstruction and Development (EBRD) bought a 4.1% stake in OGK-5 from a subsidiary of Italy's Enel on Wednesday and will now control 5.2% of the Russian wholesale generating company. Enel Investment Holding B.V. (EIH, a wholly-owned Dutch subsidiary of Enel S.p.A.) will sell the minority stake to the EBRD, which bought a 1.1% stake in OGK-5 in November 2006, "for a consideration of about 175 million euros at the current euro/ruble exchange rate," Enel said on its website. The EBRD said the purchase was one of its largest investments in a Russian power company. After the deal, EIH will retain about 55.8% of OGK-5's share capital, "sufficient to ensure effective control over the company through the power to nominate the majority of the members of its board of directors," Enel said. The parties also signed an agreement under which EIH will transfer to OGK-5 advanced international practices in environmental protection and introduce corporate governance principles to protect the rights of OGK-5's minority shareholders. OGK-5 has four subsidiaries, and produces a total of 8,672MW of electricity. The Russian government holds a 26.43% stake in the company.

Wednesday, May 07, 2008

Russia, Kazakhstan agree to double pipeline capacity by 2012

russiakazakhstanMOSCOW, May 7 (RIA Novosti) - Russia and Kazakhstan have agreed to double the capacity of the Caspian Pipeline Consortium (CPC) by 2012, the Russian Industry and Energy Ministry said on Wednesday. The decision was agreed during a visit to the ex-Soviet republic by Industry and Energy Minister Viktor Khristenko on May 6 and 7. "It [the expansion] should take place in two stages by 2012. As a result the pipeline's capacity will be increased from 32 million to 67 million metric tons of oil," the ministry said in a statement. The parties also agreed to supply an extra 17 million metric tons of Kazakh oil through the Burgas-Alexandroupolis pipeline. The trans-Balkan oil pipeline, being built by Russia, Bulgaria, and Greece, will pump 35 million metric tons of oil a year (257.25 million bbl), a volume that could eventually be increased to 50 million metric tons (367.5 million bbl). The Caspian Pipeline Consortium (CPC), designed to carry Kazakh and Russian crude to a terminal on the Black Sea, was commissioned in October 2001. Its capacity currently stands at around 30 million metric tons of oil a year. Ten pumping stations, six oil tanks for 100,000 cubic meters each and another tanker facility will have to be built for the pipeline to reach its full capacity. The two countries will hold expert consultations on the issue later in May. The feasibility study for the pipeline project expires in September 2008. Russia's pipeline operator Transneft is a beneficial owner of a 24% stake in the CPC, and Kazakhstan holds 19%.

Russian crude producer Tatneft's oil reserves up 3.9% in 2007

MOSCOW, May 7 (RIA Novosti) - Tatneft, Russia's sixth largest oil company, said on Wednesday its proven oil and condensate reserves grew by 228 million barrels or 3.9%, year-on-year, in 2007 to 6.14 billion barrels. Tatneft, which handles upstream and downstream operations and accounts for over 80% of oil output in the Russian Republic of Tatarstan in the Volga area, said the growth in oil reserves was attributable to the development of high-viscosity oil deposits in the republic and the expansion of the geography of its operations. Tatneft produced about 183.35 million barrels of oil in 2007.

Tuesday, May 06, 2008

YUKOS fate looming over RussNeft

//New tax claims could render the company bankrupt
05-05-2008 - RBC News - The same fate as YUKOS's may be awaiting RussNeft, if the company is faced with RUB 18bn – RUB 20bn (approx. USD 758m – USD 842m) in back tax claims for 2006. According to a Reuters source familiar with the audit results conducted by the Federal Tax Service early this year, that is the amount, including fines and penalties, that the fiscal authorities are likely to voice. Experts do not rule out the scenario where the company would go bankrupt, assuming that its assets would be scooped up in auction by Rosneft and Gazprom Neft, unless Oleg Deripaska's affiliates manage to reach a deal with the tax collectors or lend RussNeft the needed sum to pay the back tax. An RBC Daily source close to RussNeft confirmed to the newspaper that a tax audit of the oil company's 2006 results took place at the beginning of the year, but said he was not familiar with its results, as a statement had not yet been received from the tax authorities. A possibility is not ruled out that the claims relate to RussNeft reducing its tax burden by purchasing oil from its subsidiaries at a premium through trading firms. It has been a year since the company has stopped using that scheme, but such practice was still in place in 2006. RussNeft is currently appealing against similar tax claims of RUB 20.5bn (approx. USD 863m) for 2003-2005 in the Supreme Arbitration Court. If RussNeft does not succeed in disputing the earlier claims and receives new ones to top those, it will not be able to pay its debts, with the bankruptcy threat looming. According to the company's financial statement for the fourth quarter of 2007, its net loss amounted to RUB 16.7bn (approx. USD 703m), and its debt burden stood at RUB 32.58bn (approx. USD 1.37bn) and roughly USD 1.9bn. Although the company posted a RUB 3.5bn (approx. USD 147m) net profit in Q1 2008, this is clearly not enough to pay back all the tax and other debt. The potential bidders for RussNeft are Russian businessman Oleg Deripaska's affiliates and the Swiss trader Glencore. The latter, on a par with Sberbank, is the oil company's major creditor. However, the Federal Anti-Monopoly Service (FAS) has not yet given its green light to close the deal. Igor Sechin and Rosneft affiliates have also been named among those showing interest in the asset. According to unconfirmed data, Deripaska has already paid the former owner of RussNeft, Mikhail Gutseriyev, who is currently on both the federal and international wanted lists for tax crimes. The amount of the deal varies between USD 3bn and USD 3.5bn, plus the obligation to pay off any subsequent back taxes. The businessman himself has not confirmed this information. A lawyer who took part in YUKOS receivership has indicated that RussNeft had at least three possible scenarios if charged with new tax claims. Firstly, its governing body could apply for bankruptcy in order to have the opportunity be the one to appoint a trustee in bankruptcy. If RussNeft should dispute back taxes and the court not rule in its favor, it will be up to the company's creditors to appoint a receiver. Secondly, a third party (such as Oleg Deripaska's affiliates, if such were the terms of the deal) could lend the company the needed money under a loan agreement. And thirdly, a third party could buy RussNeft's shares from the asset's current owner or provide funds against these securities. Sberbank currently holds the company's shares as security for its loans. Mikhail Krutikhin, a partner at the RusEnergy consultancy firm, believes that RussNeft's bankruptcy is quite possible. In his opinion, Rosneft and Gazprom Neft could be interested in acquiring its assets in auctions after all the encumbrances have been lifted. However, he was unable to say if Oleg Deripaska's affiliates would also compete for the asset. Nikolai Manvelov, a spokesperson for Rosneft, told RBC Daily that the company would not be interested in acquiring RussNeft at the moment, but that the the state company's investment committee would consider the feasibility of participating in auctions when they are announced. A source close to Oleg Deripaska is convinced that RussNeft was acquired by this oligarch's affiliates and the deal paid for, despite the fact that formally it cannot yet be closed without the approval of the Federal Anti-Monopoly Service. He believes that Deripaska can settle all the problems with the fiscal authorities without having to pay a premium for the asset. “Oleg will not be able to retreat. That would be showing a sign of weakness,” the businessman thinks. Basic Element representative Pyotr Lidov said he would not comment on rumors. A representative of the concerned Federal Tax Service directorate declined to comment. A source close to RussNeft did not rule out the possibility that the fiscal authorities would in the end decide to wait until the Supreme Arbitration Court ruling on the appeal against previous back tax claims, before charging the company with new ones. The spokesperson indicated that a decision to “sell the company peacefully” to Oleg Deripaska's affiliates and Glencore had been passed “behind the Kremlin walls,” and, if that were true, it was not likely that the tax authorities would make a “second YUKOS” out of RussNeft. RussNeft declined to comment.

Friday, May 02, 2008

Will gas OPEC have final say on pipeline plans?

04/30/2008 - MOSCOW - (Igor Tomberg for RIA Novosti) - Last week, Pakistan, Turkmenistan, Afghanistan and India signed a framework agreement to build a Trans-Afghan Pipeline (TAP) by 2015. This news once again shows that energy security and the high demand for Central Asian hydrocarbons continue to be at the top of the global agenda. At the same time, on April 28, experts from the Gas Exporting Countries Forum (GECF) met in Tehran to discuss the charter of the so-called gas OPEC. GECF energy ministers are expected to finalize the latter's formation this summer in Moscow. This event may seriously change the situation on the global gas market. With a projected capacity of over 30 billion cubic meters of gas per year and a length of 1,680 kilometers, TAP will cost almost $8 billion. As before, Russian experts are doubtful about this project's success for a whole number of economic, technical and political reasons. The pipeline is supposed to be filled with gas from the Dovletabad deposit in Turkmenistan, but its resources have not yet been proven. It is also not clear how much gas can be produced by Turkmenistan. Its gas resources are estimated between 8 and 20 trillion cubic meters (BP puts them at a mere 2.9 trillion cubic meters). In 2007, Turkmenistan produced about 70 billion cubic meters of gas. As of today, it has contractual commitments to Russia's Gazprom and Iran for all of its gas. Russia is planning to buy 80-90 billion cubic meters from it a year until 2028. Moreover, Turkmenistan has signed a framework agreement to supply China and India with 30 billion cubic meters of gas each, starting next year. It is abundantly clear that TAP is primarily a political project for Turkmenistan. It will gain from this project even if it is never carried out. The framework agreement is supposed to show that Turkmenistan has lots of options and may bargain with its best clients. TAP is the fourth or fifth project of the Turkmen government. All in all, its gas pipeline plans are estimated at over 200 billion cubic meters, which is three times higher than the current production level. It may simply not have enough gas. Moreover, there are political risks as well. The pipeline's Afghan leg will be 830 km long. Military tensions in Afghanistan may thwart its construction. Pakistani-Indian relations are not trouble-free either. There are other difficulties as well. Afghanistan's geological conditions may be unfit for the pipeline. Afghanistan also has no railways, which complicates the project and increases its costs, because trucks will have to bring the pipes from Turkmenistan and Pakistan via the Kandagar road. India is pleased to be a partner in the Iran-Pakistan-India (IPI) gas pipeline project, which is an alternative to TAP. A gas pipeline from Iran to Pakistan and India with a price tag of $4.1 billion and a length of 2,700 km is supposed to be built next year. Starting in 2010, India and Pakistan expect to receive 35 billion cubic meters of gas per year, and twice as much in 2015. The two projects are not superfluous - India and Pakistan need more gas than they can produce. Gazprom is very enthusiastic about IPI, and is even eager to invest in it in exchange for a share in the consortium. The Russian-Iranian gas tandem is not a secret. On the one hand, Tehran is quite rightly positioning itself as the only source of gas for the Nabucco project. Politically, in its conflict with the United States, Iran is trying to exploit the European Union's interest in finding sources of gas outside Russia. In turn, Russia wants to prevent its potential rival from reaching out to Europe by re-orienting Iranian gas eastward - to India, Pakistan and China. At the same time, Russia is stepping up its participation in developing Iranian gas deposits. Last week, Gazprom signed a contract with the National Iranian Oil Company (NIOC) to drill and produce oil and gas in Iran, take part in prospecting, and invest in its economy. The sides have also agreed to set up a joint energy company to develop two or three blocks of the South Pars gas deposit. In the near future, the Russian gas monopoly will produce large amounts of gas in Iran. Although Iran allows foreign companies to be reimbursed only with money rather than gas, Gazprom will be able to exert serious influence on the directions of its gas exports. Experts working in Tehran to finalize the future gas OPEC's charter are supposed to compose it from two documents prepared in Moscow and Tehran. Iran wants to involve Gazprom in its hydrocarbon projects as much as possible because it wants to set up a serious organization of gas exporters. Considering that American sanctions are making it difficult for Iran to attract Western investment, Tehran is also trying to get a partner and political ally in the diplomatic war with the West, a part of which is the formation of the gas OPEC. In this context, Russia is ready to offer Iran and India one more route to consider for Iranian gas supplies to India that bypasses Pakistani territory. This project is similar to Nord Stream, and will pass in the shallow shelf waters of the Arabian Sea outside Pakistan's economic zone. This project may become a certain guarantee for the Indian economy and power industry against moody Pakistan. To sum up, for the time being TAP is no threat to Russia's gas interests. Moreover, Moscow's active involvement in gas supplies to South Asian countries may bring it more dividends and enhance its position as a leading gas exporter. Dr. Igor Tomberg is a senior research fellow at the Center for Energy Studies, the Institute of World Economy and International Relations at the Russian Academy of Sciences.

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