Russia 110908 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)

Russia's Bashneft Q2 net profit rises to $532 mln
11:42am IST

MOSCOW, Sept 8 (Reuters) - Russian mid-sized oil company Bashneft said on Thursday its net profit increased in the second quarter to $532 million on the back of rising production and higher oil prices.

Bashneft, owned by oil-to-telecoms holding company Sistema (SSAq.L: Quote, Profile, Research) , also said its revenues grew to $4.522 billion from $3.328 billion as reported in the year-earlier period. (Reporting by Vladimir Soldatkin)

Bashneft second quarter net profit jumps 44% to $532 mln
12:01 08/09/2011
MOSCOW, September 8 (RIA Novosti)

Russian oil company Bashneft saw its second quarter net profit increase 44 percent quarter-on-quarter to $532 million under International Financial Reporting Standards, the company said in a press release on Thursday.

First half net profit jumped 56 percent year-on-year to $902 million, the company said.

Second quarter revenue rose 30 percent quarter-on-quarter to $4.5 billion due to an increase in sales volumes and higher prices on crude oil and product, while first half revenue jumped 67 percent year-on-year to $8 billion.

Crude oil production rose in the second quarter 1.6 percent quarter-on-quarter to 3.738 million tonnes.

Export sales of crude oil in the second quarter of 2011 amounted to $731 million, or 12 percent more quarter-on-quarter, while revenue from sales of crude oil on the domestic market remained practically unchanged at $85 million.

Earnings Before Interest, Taxes, Depreciation and Amortization increased 33 percent quarter-on-quarter to $942 million, while first half EBITDA rose 43 percent year-on-year to $1.6 billion.

Rosneft Gets Right to Buy Black Sea, Barents Sea Explorers
By Stephen Bierman - Sep 7, 2011 4:29 PM GMT+0200

OAO Rosneft, Russia’s largest oil producer, has gained approval from the antitrust regulator to acquire two companies with licenses in the country’s southern Black Sea and Arctic Barents Sea.

A Rosneft subsidiary was cleared to buy Russian billionaire Vladimir Lisin’s Black Sea oil explorer ZAO Chernomorneftegaz and Arctic explorer ZAO Sintezneftegaz, the Federal Anti- Monopoly Service said today on its website.

Both closely held oil explorers have faced limitations on development since Russia introduced laws restricting offshore oil and gas production to state-owned companies, such as Rosneft and OAO Gazprom. Sintezneftegaz has spent $80 million on exploration in the Arctic and in Africa, according to the company website.

Rustam Kazharov, a Rosneft spokesman, was not immediately available for comment when Bloomberg News phoned his mobile phone.

To contact the reporter on this story: Stephen Bierman in Moscow at

To contact the editor responsible for this story: Torrey Clark at

Rosneft Acquired Chernomorneftegas and Sintezneftegaz

VTB Capital

September 8, 2011

News: According to Kommersant, FAS approved the acquisition of Chernomorneftegas and Sintezneftegaz by Rosneft. The deal price is rumoured to be around USD 800mn. Kommersant also speculated that Chernomorneftegas has exploration licenses with 150-300mmt of contingent fuel in the Black sea and 50-100mmt in the Sea of Azov. The resources of Sintezneftegaz are estimated at 1bnt of oil equivalent.

Our View: While the existence of significant recoverable reserves has yet to be proven for the Azov and Black sea shelf, the licences acquired for the Barents sea (Admiralteiskoe and Pahtusovoe) hold real fields with proven reserves of oil. From this point of view, this acquisition makes perfect sense for Rosneft, which is building its strategy on the development of Arctic shelf but did not yet have any real reserves in the region. The questions about the economics of developing these reserves remain, but Rosneft has an impressive track-record in resolving these issues. We believe that the purchase of offshore fields is also positive for Rosneft's stock sentiment-wise, especially after the announcement of the Rosneft-ExxonMobil partnership.

September 08, 2011 09:05

Lukoil companies to undergo unscheduled safety inspections
MOSCOW. Sept 8 (Interfax) - The Federal Environmental, Technological and Atomic Oversight Service (Rostekhnadzor) will conduct an unscheduled documentary inspection of Lukoil companies, the regulator announced on its website, citing an order signed by the head of the agency.

The agency will by October 4 review Lukoil-Nizhegorodnefteorgsintez, Permneftegazpererabotka, Lukoil-Permnefteorgsintez, Lukoil-Volgogradneftepererabotka, Lukoil-KGPZ, Lukoil-Ukhtaneftepererabotka, Saratovorgsintez and Stavrolen for compliance with industrial safety requirements for the design, construction, operation, temporary closure and decommissioning of hazardous production facilities; manufacture, assembly, set-up, maintenance and repair of equipment used at hazardous production facilities; and transportation of hazardous materials at such facilities.

Rostekhnadzor will also conduct a review at Lukoil's headquarters of documents confirming compliance with instructions that the agency issued on December 20, 2010.


(Our editorial staff can be reached at


Lukoil Drills Dry Wells on Caspian Shelf
Russia's largest private oil company, Lukoil, and Kazakhstan's Kazmunaigaz, have drilled dry wells on the shelf of the Caspian Sea, Samruk-Kazyna Fund Chief Timur Kulibayev said during a news-conference in Astana, RIA-Novosti reports.

"There is nothing dramatic in that", he said, responding to a question on why Lukoil had chosen to quit some projects in the Caspian.

Earlier, Lukoil Overseas Astana Director Andrey Kirillov said that the Russian oil company planned to draw down two of three projects in the Kazakhstan sector of the Caspian Sea. Kirillow said that the company's expectations in the area had not been met.

Copyright 2011, Oil and Gas Information Agency. All rights reserved.

Russia Can Double Oil Reserves By Tapping Arctic Potential Lukoil Executive

Sep 7, 2011

SINGAPORE -(Dow Jones)- Russia can double its oil reserves if the governcment is determined to exploit the potential in the Arctic, a senior OAO Lukoil Holdings (LKOH.RS) executive said Wednesday.

"The development of Arctic fields needs political will and support from the government," Sergey Chaplygin, chief executive of Lukoil International Trading and Supply Co. said, but didn't elaborate. Lukoil is the country's biggest private oil producer.

Russia, the world's top oil and gas producer, has proven oil reserves of around 60 billion barrels, Energy Information Administration data showed.

Lukoil plans to explore oil production in the Russian Arctic with state oil company OAO Rosneft (ROSN.RS) under a new long-term cooperation agreement that takes effect this month.

Rosneft will also explore in the Arctic area with U.S. energy giant Exxon Mobil Corp. (XOM), in a separate deal.

-By Max Lin, Dow Jones Newswires; 65-6415-4063;

7 (July - August 2011)

New Law To Open Russian Shelf For Foreigners
A new bill from the Russian Ministry of Environment will deprive Gazprom and Rosneft of their monopoly position on the shelf and open the door for foreigners.

The bill will allow foreign companies to engage in production on the Russian shelf. It has already been coordinated with other federal ministries and is currently on the table of the government, newspaper Vedomosti reports.

By Barents Observer

With the legislative amendments, Gazprom and Rosneft will lose their monopoly position on the shelf. Until now, only the companies with more than five years of offshore experience have been granted the right to engage in shelf projects, a rule which has left the two state-controlled companies in comfortable control of shelf developments.

Both of the two companies have formed several alliances with foreign companies, among them Gazprom’s consortium with Total and Statoil in the Shtokman project and Rosneft’s partnership with ExxonMobil in the Kara Sea.

"A result of the bill will be that not only two, but rather 102, companies are allowed to the shelf, Vasilyevskaya told journalists. She specified that only companies with a bigger than 50 percent stake owned by the Russian state will have the right to own field production licenses, but that exploration licenses can be granted to subsidiary units of state companies with any state ownership stake", Reuters reports.

Vasilyevskaya also stressed that all operations on the shelf will require the application of additional environmental demands and pointed at the major oil spill which last year took place in the Gulf of Mexico. reports.


Gazprom commissions Far East gas pipeline

      RBC, 08.09.2011, Vladivostok 11:45:27.Gazprom has launched the first stage of the Sakhalin-Khabarovsk-Vladivostok pipeline, which is a major pipeline of the Eastern gas program intended to develop gas distribution in Russia's Far East.

      Prime Minister Vladimir Putin attended the official opening ceremony held today on Russky Island located in the Sea of Japan near Vladivostok.

      The capacity of the first stage amounts to 6bcm of gas annually. It should be raised to about 30bcm once the project is complete.

One in, one out: Total to quit Shtokman?

September 8, 2011

No sooner has Russia sealed a deal to get help from ExxonMobil to develop one of its most challenging oil & gas deposits on the Arctic shelf than it looks like it may lose another international major as a partner on mega-project in the same part of the world.

Unnamed industry sources told Itar-Tass on Wednesday that French major Total is looking to sell its stake in the giant Shtokman project. The deposit off Russia's north-west coast in the Barents Sea is thought to hold 3.8 tcm of gas and 53m tonnes of crude, but the challenge of extracting and transporting that energy was postponed last year in the face of a glut of gas arriving in Europe from the likes of Qatar.

Sources offered no reason for the potential loss of the French partner, but noted that Total is already working with Novatek on the Yamal Pennisular. Gazprom will retain its 51% stake in Shtokman, according to the report, whilst Norway's StatOil, which currently holds a 24% stake could buy out the French group's 25%. A final decision on the Total stake is expected by the end of the year.

Gazprom to invest 100 mln USD in oil, gas exploration in Kyrgyzstan
[08.09.2011 02:47]

Russian gas giant OJSC Gazprom plans to invest 3 billion rubles (about 100 million U.S. dollars) in oil and gas explorations in Kyrgyzstan, the company said Wednesday.

Gazprom will launch the second phase of exploration at the Kugart and Mailuu-Sai-4 deposits, the company's CEO Alexei Miller told Interfax at a press conference.

The company specialists have "determined the volume of raw hydrocarbon deposits that will suffice to satisfy Kyrgyzstan," Miller said. "And Gazprom will help extract gas and oil with which to ensure Kyrgyzstan its security in deliveries of fuel.", Xinhua reported.

Miller said that he has signed a protocol with Kyrgyz Prime Minister Almazbek Atambayev stipulating strict timeframes for the continuation of exploration and beginning of mutual efforts in banking. "Fifteen days will be allocated for everything," he said.

Kyrgyzstan has suggested that Gazprom consider acquiring the nationalized bank Zalkar, Miller said. The parties will also soon take practical steps towards Gazprom's acquisition of two Kyrgyz state enterprises -- Kyrgyzneftegas and Kyrgyzgas.

"We intend in the near future to open Gazprom company group offices here that will work on a wide range of matters," Miller said.

Wed, 7 September, 2011

SES and Gazprom Form Satellite Partnership

By Peter B. de Selding

PARIS — Satellite operators Gazprom Space Systems of Russia and SES of Luxembourg on Sept. 7 announced a strategic partnership that ultimately could seek to replicate a longstanding relationship between SES rival Eutelsat of Paris and Russia’s largest satellite operator, Russian Satellite Communications Co. (RSCC).

Industry officials said the agreement could provide SES with access to the Russian market, which has been a big gap in SES’s global footprint, and provide Gazprom with access to capital.

For the moment, the SES-Gazprom deal is limited to moving SES’s Astra 1F satellite, which for two years has sat virtually unused at 51 degrees east longitude, into Gazprom’s 55 degrees east orbital slot. Gazprom has leased 16 Ku-band transponders on the satellite, a lease that will continue until late 2012, when Gazprom’s own Yamal-402 spacecraft is ready for launch.

Once Yamal-402 is in service at 55 degrees east, SES will lease an undetermined number of transponders on it from Gazprom. Yamal-402, under construction by Thales Alenia Space of France and Italy, is scheduled for launch in late 2012. It was unclear whether SES will be leasing Yamal-402 capacity for Russian coverage, or for Middle East or East European coverage from the satellite’s steerable beam.

Astra 1F was launched in April 1996 and was the first Western commercial telecommunications satellite to be launched aboard a Russian rocket. It was also the first launch by International Launch Services, the U.S.-based company that markets Russia’s Proton rocket launches worldwide outside of Russia and is now owned by Khrunichev of Moscow, Proton’s prime contractor.

Astra 1F is a Boeing 601 satellite frame that, despite its age, still has sufficient fuel to operate in three-axis-stabilized orbit well beyond 2012, SES spokesman Yves Feltes said Sept. 7. Astra 1F was operated from SES’s core 19.2 degrees east orbital slot until mid-2009, when it was replaced by a new spacecraft and moved to 51 degrees east. It has gone largely unused since then as SES weighed what to do with it.

Once Yamal-402 is in service, SES will move Astra 1F to another orbital position, Feltes said. “The satellite is doing very well and there is lots of fuel left,” he said.

Gazprom Space Systems, owned by Russia’s giant Gazprom energy producer, operates two small satellites in orbit. In addition to Yamal-402, the company has a Yamal-401 spacecraft on order, with payload electronics to be provided by Thales Alenia Space and a platform by Russia’s ISS Reshetnev satellite builder of Krasnoyarsk, Russia.

Construction of Yamal-401 and Yamal-402 have been financed with the backing of France’s Coface export-credit agency. Gazprom initially had planned launches aboard European Ariane 5 rockets as part of a larger Coface-backed contract, but eventually scrapped that idea in favor of launches aboard Russian Proton rockets. The launch price will be paid in rubles, with both launches considered part of the Russian Federal Space program.

Financing was an issue with both the satellites. Gazprom has announced ambitious growth plans in Russia and SES’s deep pockets could permit the company to meet its objectives sooner. Gazprom reported satellite transponder-lease revenue of $72.2 million in 2010.

Eutelsat and RSCC have been collaborating for more than a decade, notably with the joint use of 36 degrees east. RSCC, which operates a fleet of 11 satellites and is also in the midst of a major expansion, is about three times the size of Gazprom when measured by revenue. RSCC is also a longstanding Eutelsat shareholder.

RSCC is using Eutelsat financing to build a new satellite for 36 degrees east, to be launched in 2015. The two fleet operators are also cooperating in the commercialization in Russia of Eutelsat’s new Ka-Sat Ka-band spacecraft.

RSCC’s near-term expansion plans were dealt a setback Aug. 18 when a Proton rocket dropped the large Express-AM4 satellite into a bad orbit. RSCC has abandoned efforts to salvage the satellite, which was insured for about $300 million.

SES Chief Executive Romain Bausch said the partnership with Gazprom is likely to expand in 2013 with the launch of SES’s Astra 5B satellite, to be stationed at 31.5 degrees east. “With Gazprom, we have found an excellent partner to tap into this highly important growth market,” Bausch said in a Sept. 7 statement.

Gazprom Space Systems General Director Dmitry Sevastiyanov said the arrival of Astra 1F “is good news for the Russian market.”

In a Sept. 7 statement, he said: “The additional satellite arrives at a time of high demand and scarce capacity, and brings us in a position to meet the actual and growing capacity needs of our customers. The cooperation with SES is very productive and we may see additional joint projects in the future.”


Gazprom Neftekhim Salamat Begins New Stage in Refinery Upgrade
Under its short-term modernization plan, Gazprom Neftekhim Salamat will improve the quality of its oil product hydro-treatment processes to increase fuel quality to meet the standards of the new Russian technical regulations.

Preparatory work is already being conducted on the construction site for the second stage of reconstructing the hydrotreament unit with designing under way and materials and equipment on order.

The unit will remove sulphur, nitrogen, oxygen and metals from oil products . Gazprom Neftekhim Salamat is carrying out this re-equipment of its unit in two stages, the first of which was completed in 2009.

The new upgrades will increase refining depth to lower sulphur content to 50 ppm; the next stage of modernizaiton will lower this figure further to 10 ppm.

Axens catalysts will be used in the next-generation hydrotreatment unit.

This second stage of work is to be completed in March 2012 and is expected to cost 2.5 billion rubles, the company's press office reported.

Copyright 2011, Oil and Gas Information Agency. All rights reserved.

Russia's Dolginskoye Field Development To Begin Before 2020
The development of the Dolginskoye field in the Pechora Sea will be started before year 2020, Gazprom says.

Company representative Vladimir Vovk said in a press conference on Tuesday that the development of the Dolginskoye field will be started before 2020. Vovk, leader of Gazprom’s technology department for offshore projects, described the field as “a 90 km long colon” and said that engineers still need to work on suitable solutions for platforms, wells and objects in the area, reports.

Exploration of the field is not yet completed and the Gazprom official said it so far is impossible to estimate field development costs.

Vovk also criticized the Zvezdochka yard in Severodvinsk, northern Russia, for failing to complete the Arkticheskaya jack-up rig. The yard has been working on the rig for a big number of years and is far behind original time schedules. Gazprom will get the rig only in 2012, and this has delayed the exploration of fields like the Dolginskoye, Vovk confirms.

Gazprom recently lowered the resource estimates for the Dolginskoye field from 235 million tons to between 130-140 million tons.

The Pechora Sea is among Russia's most oil-rich waters. The first regional field in operation will be the Prirazlomnoye, where production is due to start in 2012.

Copyright 2011, Barents Observer. All rights reserved.

Gazprom-KES Holding power assets merger is being discussed by the ministries

VTB Capital

September 8, 2011

News: PM Vladimir Putin's spokesman Dmitry Peskov said that inter-ministry discussions of the Gazprom-KES Holding power assets merger had begun.

Deputy Head of FAS Anatoly Golomzin was quoted by Interfax yesterday as saying that if the deal goes through, FAS would have to introduce price caps in the market zones that are currently free from regulation (accounting for 50% of generation capacity in Russia). Energy Minister Sergei Shmatko commented that from his point of view the merger would make fuel supplies to the KES CHPs more reliable in case of acquisition. Gazprom has not yet submitted a request for acquisition to FAS, according to Golomzin.

Our View: As a reminder, FAS and MinEconomy came to a negative united position on the merger, according to head of FAS Igor Artemiev. Their reasoning was that the potential merger could seriously hit competition within the entire European Energy System. Minister for the Economy Elvira Nabiullina has criticised the potential merger, saying that the deal would undermine the power market reforms and contradict the government's intention of privatising state-owned assets.

We are reiterating that there are still significant risks of this merger falling apart as i) the deal might not get the green light from the government, ii) the Federal Anti-Monopoly Service might block the transaction or impose severe behavioural restrictions and iii) the parties could fail to agree on valuations, etc. (as was the case with Gazprom and SUEK back in 2007-08).

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