Russia 090417 Basic Political Developments

Activity in the Oil and Gas sector (including regulatory)

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Activity in the Oil and Gas sector (including regulatory)

Kudrin indicates possible 20% fall in gas production

April 16, 2009

Finance Minister Alexei Kudrin has stated that Russian gas production could fall as much as 20% this year, according to RBK Daily. This compares with the 10% reduction signaled by the company itself last week. According to the company data available in its newest prospectus, deliveries within Russia fell by 10% in 4Q09, while exports fell 13%. CDU TEK data, which we have reported on previously, show that those declines have extended into 2Q09.

We currently model in an 11% production fall for 2009 for Gazprom, and view a 20% fall as an unlikely worst-case scenario. Still, each additional official comment underlining the depth in the fall in demand for Russian gas both domestically and on export markets will have an incremental impact on earnings perceptions of the company. We reiterate our Underweight rating on both Gazprom and Novatek on uncertain volumes sales and questionable sustainability of planned ruble tariff increases in 2010 and beyond.

Thu. April 16, 2009; Posted: 11:44 PM

TASHKENT, Apr 17, 2009 (AsiaPulse via COMTEX) -- LUKOY | Quote | Chart | News | PowerRating -- Lukoil could meet a request by Russian petroleum giant Gazprom and reduce its gas production in Uzbekistan owing to dwindling demand.

"We see a reduction of around 400 million-500 million cubic meters," Lukoil's president, Vagit Alekperov, said in an interview with Bloomberg television.

Lukoil was earlier planning to produce 2.7 billion cubic meters (bcm) of gas this year in Uzbekistan.

Uzbekistan, Lukoil and Gazprom signed an agreement to supply 1.8 bcm of gas this year, but Alekperov said that Gazprom was acting fairly when it asked independent gas producers to reduce their output in proportion to its own decrease.

It was earlier reported that Lukoil planned to produce over 12 bcm of gas a year in Uzbekistan.

This rate could be achieved by 2011, the company said.

In the autumn of 2007, Lukoil started producing gas in Uzbekistan under the framework of the Kandym-Khauzak-Shady PSA. All gas exported from Uzbekistan goes through Gazprom's trunk pipeline system.


LUKoil wants Trebs and Titov deposits

Russia’s oil major LUKoil says it is ready to bid for the two fields in Nenets Autonomous Okrug, said to be the largest untapped fields in the European part of Russia.

Both the Trebs and Titov deposits on the Nenets tundra are located near LUKoil's Varandei export terminal on the Barents Sea.

LUKoil’s CEO Vagit Alekperov said in an interview with Bloomberg that the Russian state should offer more licenses domestically.

The government should offer large fields that can be rapidly developed in tenders to attract investors Russian and otherwise, Alekperov said according to The Moscow Times.

LUKoil is not the only company to bid for the lucrative licences. Three years ago state owned Rosneft they wanted to expand in the region by bidding for licenses to develop the potentially huge Trebs and Titov deposits.

According to The Sunday Times LUKoil controls an estimated 750 million tonnes of recoverable reserves across the Nenets region, while Rosneft had only 84 million tonnes.

Russia's Sakhalin-1 2009 budget totals $2 bln
Thu Apr 16, 2009 12:36pm EDT

* Sakhalin-1 2009 investment approved at $2 bln

* Not all of 2008 additional spending approved

By Vladimir Soldatkin

MOSCOW, April 16 (Reuters) - A group led by U.S. energy giant ExxonMobil (XOM.N: Quote, Profile, Research, Stock Buzz) will invest about $2 billion into Russia's Sakhalin-1 oil and gas project this year, the Sakhalin regional government said on Thursday.

Russia approved the Sakhalin-1 budget last week after a prolonged delay which analysts linked to disagreements between Exxon and Russian state gas monopoly Gazprom (GAZP.MM: Quote, Profile, Research, Stock Buzz) over the sale of Sakhalin gas.

Gazprom has long said it needs the gas produced at Sakahlin-1 to cover domestic needs, while Exxon plans to export the fuel to China.

The Sakhalin regional government announced the approved budget figure in a statement on Thursday.

"The governor... has pointed out several important details: additional spending for 2008 was approved at $480 million and 2009 spending at about $2 billion," it said.

A source close to the commission made up of government and company officials that had reviewed the budget told Reuters the exact figure for 2009 was $1.978 billion.

Extra spending for 2008 was approved at $404 million, lower than the $627 million Exxon had asked for, the source said.

Exxon operates the $12 billion project along with Russian state oil firm Rosneft

(ROSN.MM: Quote, Profile, Research, Stock Buzz), Japan's Itochu (8001.T: Quote, Profile, Research, Stock Buzz), Marubeni (8002.T: Quote, Profile, Research, Stock Buzz), Japan National Oil and India's ONGC.

Exxon had threatened to suspend the future phases of Sakhalin-1 during the bitter budget standoff. But analysts say the financial crisis and a fall in global gas demand might have made the issue less acute.

Sakhalin-1 works under a production sharing agreement (PSA), which gives investors tax stability but makes it subject to special regulations. Any increase in spending delays and reduces the government's income from the project.

The project has been producing oil for several years and reached peak production of 11.2 million tonnes in 2007.

It has been producing gas since 2005 and shipping small volumes to continental Russia. It signed a separate deal to supply China with 8 billion cubic metres of gas a year and hoped to start supplies next decade.

Gazprom, the world's largest gas producer, itself has a rival plan to supply China from East Siberia via two links. It wants to buy gas from Sakhalin-1 at market prices but talks have been stalled for over a year due to a price disagreement.

Gazprom co-leads Sakhalin-2, a neighbouring project from Sakhalin-1, and liquefies all of the gas produced there. (Writing by Olzhas Auyezov, Editing by Peter Blackburn)

Transneft and Rosneft ink agreement on oil supplies to China
Friday, 17 Apr 2009

Itar-Tass citing Mr Igor Demin head of the press service of the pipeline company as saying that Rosneft and Transneft have signed an oil purchase and sale contract. As he said, according to the reached agreements, as of 2011, Rosneft will supply nine million tons of oil and Transneft six million tonnes of oil to China through a branch of the oil pipeline Eastern Siberia Pacific Ocean.

Within the framework of Russian-Chinese agreements, Rosneft and Transneft will get from China 20 year credits in the volume of 15 and 10 billion dollars, accordingly, a branch of the ESPO oil pipeline will be built, and beginning from 2011, Russia will annually supply China with 15 million tonnes of oil during 20 years. Transneft expects to get the first tranche of the credit after the ratification of the Russian-Chinese intergovernmental agreements on cooperation in the sphere of fuel and energy complex which, as is expected, will take place in the near future. Rosneft hopes to get the first tranche within the second-third quarters of 2009.

Rosneft will sale crude oil to Transneft to repay the transport monopoly’s Chinese credit liabilities, which, in its turn, will sale it in the Chinese market to settle up the credit.

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