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Tuesday, July 25, 2006

Gazprom wants YUKOS asset on the cheap

July 2006 RBC News&Analysis - The gas giant wants to buy a stake in Gazprom Neft from embattled oil firm YUKOS at a large discount
Gazprom wants to buy a 20 percent stake in Gazprom Neft from oil company YUKOS for $1.3 billion to $1.9 billion, which is 2.2–3.2 times less than the real market price. Analysts do not expect YUKOS to sell the shares at a discount of more than 50 percent, at most. Gazprom controls 75.68 percent of Gazprom Neft (the former Sibneft), and YUKOS holds a 20 percent stake. Last year Gazprom Neft produced 33 million tonnes of oil (46 million tonnes together with its 50 percent stake in Slavneft). The court put YUKOS under external supervision in March 2006, and the company's accounts and assets in the Russian Federation have been frozen. YUKOS's confirmed debt stands at RUR 491.6 billion. Its revenue was RUR 2.77 billion in 2005, and net profit was RUR 95.4 billion. YUKOS managers developed a financial recovery plan offering to settle most of the company's debts through selling its non-core assets, including a 20 percent stake in Gazprom Neft. Back in spring Gazprom Deputy CEO Alexander Ryazanov said the company could bid for the 20 percent stake in Gazprom Neft if it was put up for sale. He said his company would pay less that it had paid for Sibneft shares (Gazprom purchased a 72.7 percent stake in Sibneft for $13 billion). On July 19, one day before the meeting of YUKOS's creditors, Gazprom sent a letter to YUKOS CEO Steven Theede offering to buy YUKOS's stake in Gazprom Neft. Observers say Gazprom wants to complete the acquisition before the shares are put up for auction. After the creditors' meeting it became clear that YUKOS's days are numbered and the company is facing bankruptcy. YUKOS values its holding in Gazprom Neft at $4.2 billion. Analysts say this is a fair price. But Eduard Rebgun, YUKOS's court-appointed receiver, estimated the asset at $3.4 billion. After reports came that Gazprom sent a letter to YUKOS offering to buy the stake, analysts have been wondering whether Gazprom would want a 30 or 50 percent discount. But Gazprom's offer surprised everyone. The gas giant wants to pay $1.3 billion to $1.9 billion, which is 3.2-2.2 times less than the real price. Quoting sources close to Gazprom, Russian media reported on Friday that Gazprom defended its pricing by referring to the acquisition of a 7.59 percent holding in LUKoil by US energy giant ConocoPhillips for $1.928 billion in 2004. The sources, though, could not explain Gazprom's reasoning behind this comparison saying it was not apparent from the letter. Gazprom and YUKOS spokesmen were unavailable for comment on Friday. Analysts agree that the offered price of $1.3 billion to $1.9 billion is too low. "Gazprom's appraisers should have explained their reasons for the low price. The only explanation seems to be that this is a minority stake," says Denis Borisov, at IFD Solid. Andrei Gromadin, an analyst with MDM Bank, thinks Gazprom will buy the shares for about $3 billion. The gas giant wants to complete the deal before YUKOS's bankruptcy as the price will depend on the number of bidders, Gromadin believes. "This is a minority stake but it is large enough, and many companies would like to have it," he said. Borisov, on the contrary, says Gazprom does not expect strong competition for the asset, with few companies willing to become Gazprom's minority shareholders.

Gazprom starts drilling wells in Shtokman gas field

Shtokman mapOn a Side The Shtokman field
The Shtokman field, one of the world's largest natural gas fields, lies in the Russian portion of the Barents Sea, 600 km north of Kola Peninsula. Its reserves are estimated at 3.2 trillion cub.m. The sea depth in the area averages about 350 m. Natural gas reserves were discovered in 1988, but the field was not developed owing to extreme arctic conditions and the depth of the sea. Two Russian companies hold licenses to develop Shtokman: Sevmorneftegaz (a subsidiary of Rosneft) and Gazprom. In September 2005, Gazprom selected five companies - Statoil and Norsk Hydro from Norway, Total from France and Chevron Corporation and ConocoPhillips from the US - as finalists in a search for partners to develop the field. The development costs are estimated at USD15 billion to USD20 billion.
RBC, 24.07.2006, Moscow 18:26:51 – Sevmorneftegaz, Gazprom's subsidiary, has started drilling exploration well No. 7 of the Shtokman gas field in the Barents Sea, the holding's press service reports. All drilling is carried out under the company's license obligations. The field's reserves are expected to increase. Gazflot, Gazprom's subsidiary, is the project's general contractor. The well is being drilled with the semi-submersible drilling rig Deepsea Delta leased by the Norwegian company Hydro. The sea depth in the drilling spot is 340 meters.

Wednesday, July 19, 2006

Gazprom, E.ON Swap Assets

July 2006 Kommersant - Russia’s gas monopoly Gazprom and German E.ON AG entered into a framework agreement on the asset swap Wednesday. E.ON gets 25 percent less a stock in Yuzhno Russkoe field, while Gazprom receives 50 percent less a stock in Hungarian E.ON Foldgaz Storage and E.ON Foldgaz Trade and 25 percent plus a stock in E.ON Hungaria. But U.S. Moncrief Oil International went to the German court to revive its title to 40 percent in Yuzhno Russkoe, rotting the energy union of Germany and Russia.
Gazprom and E.ON announced yesterday they made a framework agreement on the asset swap in production, trade and sale of gas and in electric power industry. The swap will enable E.ON to meet the requirements of German antimonopoly bodies in part of increasing its resource base, which E.ON promised to do when taking over Ruhrgas.
Yuzhno Russkoe field, Yamal-Nenets Autonomous District, is the main raw material base for the North European Gas Pipeline. The field has 700 billion cu meters of gas in proven reserves and its worth is estimated at $7.9 billion. Severneftegazprom is the license holder.
The first partner of Gazprom in Yuzhno Russkoe is German BASF. In April, Gazprom entered into an asset swap agreement with it, whereby the subsidiary of German consortium, Wintershall got 35 percent in Severneftegazprom (but only 25 percent of stocks are voting). So, even after the asset swap with German partners, Gazprom will vote by 50 percent plus two stocks in Severneftegazprom but profit only by 40 percent of the field’s gas.
The timing of the framework agreement between Gazprom and E.ON is interesting. Made on the eve of the G8 summit in St. Petersburg, it is more of political than of economic significance. But the future of energy union of Russia and Germany doesn’t look so rosy because of the Americans. On July 10, the U.S. Moncrief Oil International lodged a suit against BASF and Wintershal seeking the remedy for the loss of 40 percent in Yuzhno Russkoe. The suit against E.ON will follow in the near term, Moncrief President Jeffrey Miller promised.

Gazprom is an Arctic empire

NOVY URENGOY - MOSCOW. (Vasily Zybkov, RIA Novosti economic commentator) - A well-paved road leads north in the direction of Yamburg. A speed limit does not allow a modern bus to exceed 80 km per hour. But this is understandable because every day buses deliver builders, gas and road workers to their job sites in the radius of up to 100 km from Urengoy. In more remote places, they work in weekly or even monthly shifts. All in all, Gazprom has an 18,000-strong army of workers here. The view outside is like a still from a film: the loden forest tundra with feeble birch trees, small lakes, creeks and endless marshlands. A two-month arctic summer has just started. The more northward, the scantier the flora is. It is gradually replaced with snowdrifts in roadside ditches and ice-covered lakes. Local nomads - Nenets and Selkups - are not there, either. Only once a small herd of deer ran past. Well beyond the Arctic Circle there appear high permafrost-created mounds, some of them as high as a ten-storey house. The locals do not know what they are called, but they look impressive. Everywhere there are piles of gas and oil pipelines of different diameter, high transmission lines along the track, hundreds of bright yellow stop cocks, Cyclopean wells, burning gas torches, compressor stations, and plants, which process gas before it is pumped into the pipes. A one-track railway leading to Yamburg runs parallel to the highway. Orange, blue and yellow houses are instant eye-catchers. All buildings look gigantic in the empty and table-flat tundra. There are no people anywhere. But the road is not idle - the bus catches up with pipe carriers, drive trailer trucks, dumpers, and some special-purpose vehicles. There are rutted tracks of cats by both sides of the highway. There are no cars at all, although we had been told that there were parking problems in Novy Urengoy. The number of cars has increased many times over lately. All the roads in the sub-arctic tundra near Urengoy belong to Gazprom - 600 km of them are paved, and double the number unpaved. Private individuals and other organizations are not allowed to use them. By and by one gets accustomed to the unreal industrial landscape under the low northern skies, which periodically produce snow or drizzle. I suddenly realize that I have been on a bus for three hours, passing through a huge desolate workshop. But if this is just one workshop, how big is Gazprom? We are heading for the northernmost deposit, Pestsovoye, which is operated by Urengoygazprom. It is 300 km away from the Kara Sea or the Gulf of Ob. Out of 61 diamonds in Gazprom's crown, this is the biggest and most valuable. Before the Zapolyarnoye deposit was commissioned, Urengoy was Gazprom's number one producer of gas for a long time. In different years its share in the annual production of gas fluctuated between 25% and 60% (140 billion cubic meters in 2005, and 304 billion cubic meters in 1987). This year the world's biggest oil and gas condensate deposit celebrated 40 years since it was discovered. During the years of its operation, it has produced more than six trillion cubic meters of natural gas (out of 11 trillion cubic meters, which were proven). The Pestsovoye deposit is Urengoygazprom's trump card for the near future. It is one of Gazprom's seven big producing facilities, which have been commissioned recently. It has more than 120 operational wells (20 more will be placed on production later). The deposit's annual capacity is 27.5 billion cubic meters of gas. This is how much gas Russia exported to France and Italy last year. Its gas treatment plant (UKPT-16) is the newest and most powerful. It has the most up-to-date equipment, and a price tag of $1.5 billion. "Two thirds of this sum are the costs of the transport infrastructure - roads and pipelines, hotels and other facilities for workers and engineers," explained deputy director Dmitry Nureyev. Even without this remark, it is clear that the further north a deposit is, the more expensive its gas. Nureyev thinks that it will take the local gas about two weeks to cover several thousand kilometers and reach Moscow. In another fortnight it will get to France and Germany. It is quite probable that it will go into the North European Gas Pipeline, which is under construction now. The gas treatment plant employs several dozen people in one shift. Alcohol ban is enforced in the local settlement. Maintenance workers make a $1,000 a month, and the deputy director $3,000. A drilling foreman and his assistant get $2,000 each. Many want to get these jobs, so the administration can choose. The gas-treatment plant has a very comfortable hotel, and a big well-equipped gym. Labor is arduous, and the conditions for rest and leisure must be adequate. I have been to the North several times, I was an explorer myself, and lived in sub-arctic towns and settlements with barracks and trailers downtown. Everything was temporary and hopeless. People lived in line with the in-and-out principle. They came to make money and returned home. These towns were phantoms without a future, and without the past - there were no old people or cemeteries. In Novy Urengoy I've seen a different Russian northern city for the first time. It does not evoke a sad feeling of would-be parting. This city has comfortable houses, numerous shops, and a ramified network of social facilities. It has 21 schools, affiliates of colleges and vocational schools, and a powerful industry (even without Urengoygazprom). The construction of a chemical plant is now on the agenda. It will produce 300,000 tons of laminated and granulated polyethylene, and will meet a third of the domestic demand. A no less promising project is an LNG plant. Liquefied natural gas is an amazing and very valuable by-product. It has half the weight of petroleum, although its specific heat is 12% higher, and its octane number is 15% bigger. LNG occupies 85% in the energy balance of Japan, and 25% in that of the United States. Russia is now completing in Sakhalin the construction of what would be one of the world's biggest LNG plants with a capacity of about 10 million tons of LNG a year. Novy Urengoy is the first city in the Far North to have launched the production of diesel fuel, LNG, and low-octane petroleum from gas condensate. Oleg Obukhov, chief process engineer of the gas condensate processing plant said that after adjustments for inflation, the plant would now cost $2.5 billion. Pipelines deliver these valuable products to a petrochemical plant in Tyumen. Novy Urengoy is a bridgehead for the further onslaught of geologists and gas workers on the bleak North. It is abundantly clear that the huge deposits of the sub-arctic regions and the arctic shelf of the Barents and Kara seas will be the source of Gazprom's future wealth. By the year 2030 its reserves will grow by 14 trillion cubic meters from these deposits alone to reach an astronomical 29.1 trillion cubic meters of gas. By the same time Russia's arctic regions will produce more than 180 billion cubic meters of gas and 11 million tons of oil per year. Now the Russian North has a future - both for hydrocarbons and for people.

Thursday, July 13, 2006

Gazprom boasts "practically unlimited" investment capacity - Medvedev

13.07.2006 - MosNews - On Thursday, July 13, Alexander Medvedev, the vice-president of Russia's natural gas monopoly Gazprom, rejected criticism of the company's operations offered by Claude Mandil, executive director of the International Energy Agency. Mandil had questioned Gazprom's reliability and investment plans with an earlier interview in the International Herald Tribune. Medvedev said Gazprom has no need to produce gas that is not yet sold and that it will do what is necessary to meet its domestic and foreign commitments. In an interview with the French daily Le Figaro Medvedev said that Mandil is not qualified to judge the Russian gas giant. He added that Gazprom has "practically unlimited" financial capacity for investments.

Gazprom to Process All Gas of Kazakhstan

07-12-2006 Kommersant - Gazprom management committee sanctioned the project to set up a 50/50 venture with Kazakh state-run company, KazMunayGaz. The venture that is slated for launch in 2007 will process all gas of Kazakhstan. Then, part of the gas will go to meet domestic requirements of the country, while the remainder will be exported via another sub of Gazprom and KazMunayGas – KazRosGas. Yesterday, Gazprom management committee gave the go-ahead to setting up a pari passu venture of Gazprom and KazMunayGas on the assets of Orenburg Gas Processing Plant. In addition to refining gas of Karachaganaksk field of gas condensate, Kazakhstan, the venture will focus on rebuilding Orenburg Plant. Under the feasibility study, Gazprom is expected to contribute half of the plant's facilities worth 9.5 billion rubles, said Alexander Ryazanov, deputy chairman at Gazprom management committee, while Kazakhstan will have to provide money for its half. The overall value of the plant has been estimated at 19 billion rubles. All documents under the project were forwarded to Kazakhstan. "We intend to seal all necessary documents this fall and establish the venture before late this year to launch it already in 2007. The pattern and the exact amount will be determined over negotiations, which have just started," said KazMunayGas 1st Vice President Zhaksybek Kulikeyev. At first, the crude gas will be delivered to Orenburg Plant for processing, then, all gas will go back to Kazakhstan. KazMunayGas will buy some portion for internal needs. Another venture of Gazprom and KazMunayGas, KazRosGas, will acquire the remainder for export deliveries, said a source at the plant. "KazRosGas will sell gas in Europe," Kulikeyev pointed out. "We would like to see the price of $140/ths cu meters on Kazakh-Russia's border and equally share it with Gazprom."

Wednesday, July 12, 2006

Gazprom board approves Kazakh project

KazMunaiGaz07-12-2006 RBC News - The executive board of Russia's gas giant Gazprom has approved plans to create a joint venture with the Kazakh national company KazMunaiGaz on the basis of the Orenburg Refinery. Gazprom said it would sign a long-term agreement for gas supplies from the Karachaganak gas condensate field to the refinery. The issue will be submitted for approval to Gazprom's Board of Directors. Alexander Ryazanov, Deputy CEO of Gazprom, said earlier that the technical and economic feasibility study for the project had been prepared. Over the next 15 years, the Orenburg plant will refine up to 15 billion cubic meters of gas a year. The contract with the Karachaganak consortium will be signed before September, and the new joint venture is expected to start operations on January 1, 2007. The project operator is KazRosGaz, which was set up by Gazprom and KazMunaiGaz in June 2002. Karachaganak Petroleum Operating, in which Russia's oil company LUKoil has 15 percent, is responsible for the development of the Karachaganak gas condensate field. There are plans to bring annual production to 25 billion cubic meters by 2012. Kazakhstan's proven gas reserves stand at about $2 trillion cubic meters, and forecast gas resources are put at about 8.3 trillion cubic meters. The republic produces about 12 billion cubic meters of gas a year, with domestic consumption at 5 billion cubic meters. National Company KazMunaiGaz was set up in 2002. It reported a revenue of $2.4 billion in the first five months of 2006, up 23.9 percent on the year. Capital investment amounted to $271.7 billion from January to May 2006. The company produced 3.87 million tons of oil and gas condensate, 1.8 percent more than in the same period of last year.

Tuesday, July 11, 2006

International Energy Agency Set to Destroy Gazprom

BRIEFLY 07–11–2006 FCInfo News – Gazprom suspects the International Energy Agency (IEA) of attempts to destroy it, said Alexander Medvedev, deputy CEO of the Russian energy giant.

Monday, July 10, 2006

Gazprom's 2005 figures "not bad"

07-11-2006 RBC News Analysis - Russia's gas giant Gazprom has published its accounting statements for 2005 in accordance with international accounting standards. The company reported a 49 percent increase in net profit to RUR 315.931 billion (about $11.75 billion), slightly below expectations. But revenue was better than expected, rising 42 percent to RUR 1.383 trillion. Net debt reached an all-time high of RUR 797.465 billion (about $29.67 billion), up 60 percent from RUR 499.855 billion 12 months before. The group almost halved its capital investment in production, at the same time increasing transportation costs by half. Analysts described Gazprom's result as "obviously not positive" but "not bad, quite in line with expectations." Gazprom is the world's largest gas company. It produced 547.9 billion cubic meters of natural gas and more than 12 million tonnes of oil last year. The State Property Agency controls 38.37 percent of Gazprom, and state-owned Rosneftegaz has a 10.74 percent stake in the gas monopoly. Gazprom's affiliates have 7.025 percent, of which 2.93 percent belongs to Gerosgaz, a joint venture of Gazexport and Germany's E.ON Ruhrgas. E.ON Ruhrgas holds 6.5 percent of Gazprom. Hafta Moscow has 4.2 percent, and the National Depositary Center holds 2.26 percent. Russian individuals control 13.07 percent. On Friday Gazprom published its consolidated reports for 2005 in accordance with international accounting standards. It reported a 49 percent increase in net profit to RUR 315.931 billion (about $11.75 billion). Revenue was up 42 percent at RUR 1.383 trillion, of which Sibneft accounted for RUR 90.989 billion. Net debt stood at RUR 797.465 billion (about $29.67 billion), up 60 percent from RUR 499.855 billion in 2004. Sales profit climbed 58 percent to RUR 454 billion. Capital investment in production almost halved, from RUR 167 billion in 2004 to RUR 94 billion. At the same time, the gas company increased investment in transportation by half, from RUR 107.7 billion to RUR 158 billion. Total debt obligations topped RUR 1.6 trillion. On the whole, analysts were somewhat disappointed by the results. Andrei Gromadin, at MDM Bank, assessed Gazprom's figures as "obviously not positive" while Leonid Slipchenko, at Rye, Man & Gor Securities, said they were "not bad but quite in line with expectations." The gas giant was expected to report a higher net profit, at about $345 billion. Experts also pointed to a number of other problems. Denis Borisov, at IFK Solid, said ROS (return on sales) dropped to 17.05 percent in the fourth quarter from 27.4 percent in the third quarter. The annual ROS stood at 22.8 percent. He attributed Gazprom's increased revenue to high gas prices on world markets and inclusion of Sibneft's results in the consolidated report. The lower return on sales was due to a significant increase in operating costs and financial expenses (losses from exchange rate changes and interest payments), Denisov said. And Gromadin says the company's expenses are rising too fast. Mikhail Korchemkin, managing director at the East European Gas Analysis consultancy, believes that Gazprom's production and transportation costs in 2005 reflect the seasonal nature of the company's operations. "In the 2004 report, the seasonal increase in gas production in the fourth quarter was accompanied by lower production costs, which cannot be," he said. Andrei Gromadin also thinks that Gazprom should not reduce investment in production. "Last year's rise in output was largely due to acquisitions, and in future Gazprom will have to increase capital investment in production," he noted. And Sergei Pravosudov, the head of the National Energy Institute, said Gazprom's production was declining when Alexei Miller came to the company, and the management focused on this problem. "Now output is rising by the year. Over the past three years, the bulk of the company's investment has been in the gas transportation network. Indeed, it is much more expensive to take gas from the Yamalo-Nenets Autonomous District to central Russia than to produce it. This year Gazprom is expected to adopt an investment program for the Bovanenkovskoye gas field on the Yamal Peninsula. This will require significant expenses. At the same time, the gas company will start the construction of a new pipeline from the Bovanenkovskoye gas field to Ukhta," he said. Gromadin also pointed to Gazprom's large debt burden. "Though Gazprom purchased Sibneft (now called Gazpromneft), the net debt could have been smaller," he said. On the other hand, Pravosudov says Gazprom is paying off its debt quickly. "The relative debt burden is expected to reach the level preceding the acquisition of Sibneft," he noted.

Thursday, July 06, 2006

Gazprom Export Monopoly Bill Passes Final Reading in Russian Parliament

05.07.2006 - MosNews - On Wednesday, July 5, the State Duma, the lower house of the Russian parliament, has approved the third and final reading of the bill that cements the export monopoly of the country's natural gas monopoly Gazprom. The bill passed the final reading in the Duma by a vote of 354-64 with no abstentions. It stipulates that all Russian exports of natural gas must be run through state-owned pipelines — in effect limiting Russia's lucrative gas export market to state-controlled Gazprom. Meanwhile, as MosNews reported, the European Union has been pushing the Russian authorities to open the country's export pipeline system to independent producers and foreign firms. The push came as an attempt to reduce Gazprom's ability to charge what Europe considers as monopolist prices on the gas that the energy giant transports from Russia and former republics of the Soviet Union. Proponents of the Kremlin-backed measure cast the bill as a necessary response to growing foreign competition for a stake in Russia's rich natural resources.

CEO of Russia's Gazprom elected chairman of Gazprom Neft board

MOSCOW, July 6 (RIA Novosti) - The head of Gazprom [RTS: GAZP], Alexei Miller, has been elected chairman of the board of directors at Gazprom Neft [RTS: SIBN], the Russian energy giant's oil subsidiary said Thursday. The board also approved new regulations on the company's affiliates and branches due to the change of the company's name. Sibneft was renamed Gazprom Neft in May.

Monday, July 03, 2006

Italy Mulls Opening Its Markets to Gazprom

July 3, 2006 - The Associated Press - Russia and Italy are working on a reciprocal deal that will open the Italian market to natural gas behemoth Gazprom and allow Italian energy giant Eni to drill for gas in Russia, the Italian foreign minister said Friday. "We are currently discussing a new agreement between Gazprom and Eni," Italian Foreign Minister Massimo D'Alema said after a meeting with his Russian counterpart Sergei Lavrov. "It is a new type of deal that will open up our markets for Gazprom, so that it can sell its gas directly in Italy rather than through Italian firms," D'Alema said. Gazprom is pursuing a strategy whereby foreign energy companies will be allowed to tap into its nearly 30 trillion cubic meters of gas reserves on the condition that Gazprom is given access to Europe's lucrative retail and distribution markets. Gazprom is the biggest gas producer in the world and supplies 25 percent of the gas that Europe consumes. Italy is Gazprom's biggest customer, after Germany. The European Union's reliance on Russian gas was highlighted by a New Year's price fight between Moscow and Kiev that temporarily disrupted supplies to Europe. The dispute led to calls by European officials to diversify supplies away from a dependence on Gazprom and demands that Russia allow foreign and independent producers access to its export pipeline.

Gazprom, Libya's NOC preparing cooperation memorandum

MOSCOW. June 28 (Interfax) - Gazprom (RTS: GAZP) and Libya's National Oil corporation (NOC) are planning to sign a memorandum on cooperating in the oil and gas sector, Gazprom said in a statement. Gazprom Deputy CEO Alexander Medvedev and NOC CEO Shukri Mohammed Ghanem held talks during a recent visit to Libya by a Gazprom delegation. "The meeting discussed possible areas of corporation in the oil and gas sector in Libya as well as in third countries, including North Africa. The talks discussed the possibilities for Gazprom participation in projects to develop Libya's gas infrastructure, and the production, transport and processing of hydrocarbons. A memorandum will be signed soon that will reflect all these issues and the main tasks at this stage for cooperation in the gas sector between Libya and Gazprom," the statement says. The parties decided to continue consultations on cooperation in the near future.

Gazprom Secures Control of Gas Field Enough to Supply All of Britain for 3 Years

gaspipe30.06.2006 - MosNews - Russia's natural gas monopoly Gazprom said on Thursday, June 29, that it won control over a big Siberian gas field. The 51 percent stake in Beregovoye field was sold by Itera, Russia's largest indepedent gas producer, to Gazprom's banking arm Gazprombank. The field is located close to the production base of Gazprom, the world's largest gas producer, which supplies a quarter of Europe's gas. It will further boost Gazprom reserves base, already representing one sixth of the world's total. With reserves of 320 billion cubic metres of gas, Beregovoye would be able to supply Britain for more than three years. The purchase of the deposit, Itera's top asset, follows Gazprom's acquisition of a 20 percent stake in Russia's top independent gas producer Novatek for $2.5 billion earlier this week. Analysts quoted by Reuters have said the deal gave Gazprom a stake in its nearest rival while assuring Novatek of the protection of the Kremlin-backed giant, which dominates the gas sector in Russia. The Kremlin has been tightening its grip on Russia's energy sector over the past two years, bringing Gazprom, oil firm Sibneft and the bulk of Yukos under direct control, and toughening laws to restrict foreign access. Novatek's and Itera's major business risk is their reliance on Russia's pipeline network, over which Gazprom has a de facto monopoly. Renaissance Capital brokerage has said Gazprom may see its expansion on the domestic market as a way of freeing itself from growing reliance on imports of Central Asian gas as well as securing supplies for the domestic market, allowing it to concentrate on lucrative exports. Gazprom's production has been stagnating in the past years while the firm faces growing demand at home and from Europe and therefore has to rely heavily on imports from Kazakhstan, Turkmenistan and Uzbekistan. As MosNews reported, Turkmenistan reiterated on Thursday it would cut supplies to Gazprom if it failed to agree on a new price.

Gazprom Sees Action on Eastern Front

Saparmurat NiyazovTurkmenistan turns off the gas
June 30, 2006 Kommersant by Natalia Grib - Relations between Gazprom and Turkmenistan have come to an open conflict over natural gas. Yesterday they annulled their agreements on gas supplies to Russia for this year and next. Gazprom's monopoly on Central Asian gas is thus broken. The conflict is to the advantage of Ukraine, which can now obtain 17 billion cubic meters of gas, more than half of its import needs for the second half of the year. It also strengthens Ukraine's position in negotiations with Gazprom that are to take place on July 1. The official Gazprom statement reads that "Turkmenistan proposed obtaining gas for $100 per 1000 cu. m. The parties did not reach an agreement, in connection with which negotiations were broken off." A report distributed through the Turkmenistan Foreign Ministry stated that President of Turkmenistan Saparmurat Niyazov and Gazprom head Alexey Miller met for three hours on the morning of June 29 and discussed conditions for the supply of 25 billion cu. m. gas in the second half of the year and 50 billion cu. m. in 2007. "The parties did not reach an agreement and negotiations were broken off," the ministry confirmed. Turkmenistan said that it would continue to supply Russia with gas through September and then supplies would be shut off. The agreement reached on January 4 between Gazeksport, a wholly-owned subsidiary of Gazprom, and Turkmengaz stipulated the deliver of 30 billion cu. m. of gas at $65 per 1000 cu. m. A source at Gazeksport said yesterday that "Turkmenistan will supply 21.5-22 billion cu. m. by July 1. In the second half of the year, there is 8 billion cu. m. left. Saparmurat Niyazov proposed raising the price on the volume of gas to $100 but, in that case, Turkmenistan will receive heavy fines for unilateral failure to meet the conditions of the contract. Then they agreed that the remaining volume would be supplied at the previous price, and Gazprom refused to make further purchases." Turkmenistan has hardened its position as Gazprom demanded that its customers pay average European prices. Gazprom and Naftogaz Ukrainy bid against each other for Turkmenistan's gas (after it had made agreements with both companies), with Gazprom winning at an additional price of $450 million. Gazprom buys gas from Uzbekistan and Kazakhstan from LUKOIL for $60-65 per 1000 cu. m. and gas intended for processing at the Orenburg oil refinery will cost it $140 per 1000 cu. m. A Ukrainian delegation headed by Minister of Fuel and Energy Ivan Plachkov arrives in the Turkmen capital of Ashghabad today. Should the Ukrainians fail to reach an agreement on gas purchases, Belarus will certain be next in line. Ukraine is likely to reach an agreement with Turkmenistan, however. The price of $95 per 1000 cu. m. set by Gazprom and Rosukrenergo is to be substantially raised on July 1 and Ukrainian Prime Minister Yulia Timoshenko has sworn that the agreement with those companies will be reconsidered. Gazprom has stated that "there is an agreement on the pumping of gas for Ukraine; therefore, if the company buys it, the monopoly will guarantee its transport." Ukraine will then be able to negotiate with Gazprom until mid-autumn and the good relations between Timoshenko and Niyazov mean that Ukraine will probably receive a significant volume of Turkmen gas. Thus, Gazprom has saved $385 million and lost its monopoly over Central Asian gas and its leverage over Ukraine. It is possible that Gazprom has lost gas that was intended for export to Western Europe.

Gazprom Claims Control of Eni Assets

July 03, 2006 - Kommersant - Russia's gas monopoly Gazprom and Italy's oil and gas major Eni may soon seal an essentially new agreement, Italian Vice PM and Foreign Minister Massimo D'Alema said Friday. The new document will be of strategic significance, the sources say, if only Eni yields control of its assets to Gazprom. Otherwise, the parties will confine to joint projects of constructing oil and gas pipelines in Turkey and Gazprom will independently attempt to jump into Italian market of end users in 2007. The negotiations of Eni and Gazprom concerning a very important agreement are underway, D'Alema briefed Moscow reporters Friday after he met Russia's Foreign Minister Sergey Lavrov. "We are interested in Italian networks of gas distribution, energy assets and LNG projects in Egypt and Libya," Gazprom CEO Alexey Miller specified a bit later. Miller said some time before Gazprom was in talks with Eni to acquire subsidiaries of the latter - Snam Rete Gas (SRG) and EniPower. "We have made an offer to the Italians." a source with Gazprom said, "Want strategic cooperation agreement? Give majority stakes in subsidiaries. Less than that won't be enough." Gazprom is ready to swap gas assets (some interest in the fields) in the Barents Sea and oil assets in Siberia only for control of Eni assets. No strategic cooperation will happen otherwise and the agreement will confine to the joint plans of constructing a few gas pipelines.

Gazprom's Cash Shuffle

Herbert Walter, CEO German Dresdner Bank06-30-2006 Kommersant by Alexandra Simonenko, Alexey Lampsi, Natalia Grib - A third of Gazprombank goes to Gazfond instead of to Dresdner Bank The largest deal involving a foreign investor ever to take place in the Russian banking sector has fallen through. Dresdner Bank has not acquired 33.3 percent of Gazprombank. The results from the June 20 annual shareholders meeting of Gazprombank, which were published yesterday, held a big surprise. At that meeting, it was decided not to place a supplemental emission of the bank with Dresdner Bank but with Gazfond pension fund, a Gazprom affiliate, which will pay 50 percent more than Dresdner was to. Gazprombank will sell 6.67 million shares to Gazfond for 5184 rubles each, for a total of 34.6 billion rubles. In December 2005, that stock package was assessed 23.2 billion rubles. As of April 1 of this year, Gazprombank was ranked third in Russia by its own capital (45.35 billion rubles) and the sum of its net assets (489.31 billion rubles). The main shareholders in the bank are Gazprom (87.49%) and New Financial Technologies (12.51%). New Financial Technologies is 99.99-percent owned by Gazprombank. A Gazprombank official spokesman explained that change of plans as due to the fact that Gazfond "made a more interesting offer." He emphasized that Dresdner Bank remains a strategic partner of Gazprombank and may in the future become a bank shareholder. The bank plans its IPO for next year. Dresdner Bank declined to comment on the financial aspects of the deal. A spokesman for the Dresdner investment division told Kommersant that "our relations with the Russian bank remain very good, we are working on a mass of other projects." Analysts say that the deal may indicate that Gazprom intends to finance construction of the North European Gas Pipeline independently. In the spring of this year, the German Bundestag stated that former German chancellor Gerhard Schroeder illegally gave Gazprom government guarantees on $1 billion in credit from German banks. Gazprom then said that it had not taken that credit and would not. Gazprom has yet to announce the completion of financing of the project. There were plans for Gazprom to cooperate with the German E.ON/Ruhrgas, but a series of disagreements seems to have derailed those plans. Gazprom declined to comment on those relations yesterday. Analysts note that the deal announced yesterday looks forced. "Investing more than 20 percent of the fund's reserves in not the most liquid shares is ineffective from the point of view of capital management and unjustified from the point of view of risk management," commented Alexey Shkrapkin, general director of the Kapital management company.

Gazprom Refused Turkmen Gas New Price

Turkmenistan30.06.2006 12:19 - [] - Russian gas giant Gazprom and Turkmenistan have failed to reach an agreement on 2007's gas price rise and have broken off talks over the matter, Gazprom said on Thursday. "The two sides have not reached an agreement and negotiations on this subject have therefore been interrupted," Gazprom said in a written statement which referred to talks that had been taking place in Turkmenistan. Turkmenistan, which currently sells gas to Gazprom at 65 U.S. dollars per 1,000 cubic meters, has asked for 100 dollars from 2007, which Gazprom refused to pay. Turkmenistan is the second-largest gas producer in the former Soviet Union countries after Russia. In 2003, Russia and Turkmenistan signed a 25-year deal for cooperation in the gas sector, and last December the two countries signed a contract for Gazprom to import 30 billion cubic meters of gas in 2006 at a price of 65 dollars per 1,000 cubic meters. Last week, Gazprom's CEO Miller visited the Turkmen capital, Ashgabat, to renew the contract, but Turkmenistan "categorically refused the offer," according to Turkmen Energy Minister Kurbanmurad Atayev.

Gazprom soon to decide on attractive energy projects

RBC, 30.06.2006, Moscow 18:29:46.In the near future Gazprom will determine which attractive energy assets it will develop jointly with RAO UES of Russia, the company's CEO Alexei Miller told a press conference today. At present priority energy projects are being determined and the strategy for Gazprom's participation in the projects is being developed. Miller stressed that one of the assets was already clear. Gazprom intends to acquire the additional share issue of Mosenergo. However, commenting on Gazprom's participation in additional share issues of other companies, Miller did not specify exactly which companies attracted the gas holding. "The decision on which assets are attractive will depend on the export gas release," he said.

Gazprom buys Itera

In return, the gas giant will receive access to Gazprom's pipeline network for 5 years
RBC News – July 2, 2006 – Gazprombank, the banking arm of Russia's gas monopoly Gazprom, has purchased a 51 percent stake in the gas company Itera's subsidiary Sibneftegaz, which holds the license for the Beregovoye gas condensate field in Western Siberia. The value and other details of the transaction have not been released. Gazprom and Itera also signed an agreement giving Itera access to Gazprom's gas transportation system for a period of five years. Under the agreement, Gazprom will buy gas from Itera "on the agreed terms," allowing the independent gas producer to provide raw materials for Gazprom's processing facilities, the two companies said in a joint statement. On a Side ITERA Shares Beregovoe with Gazprom
06-30-2006 Kommersant - Gazprom bought out 51 percent in Sibneftgaz, holder of license for Beregovoe field of gas condensate. The deal budget hasn't been officially disclosed, but the experts say it hardly exceeded $200 million. By acquiring the asset, Gazprom has established control over Russia's last big independent producer of gas, ITERA. The five-year struggle of ITERA for the market independence ended yesterday. Gazprombank Board Chairman Andrey Akimov and ITERA CEO Igor Makarov entered into a cooperation agreement to develop Beregovoe field of gas condensate. On the same day, Makarov sealed cooperation with Gazprom CEO Alexey Miller, stipulating additional provisions of Sibneftegaz disposal. Under the first document, Gazprombank buys 51 percent in Sibneftegaz from ITERA to connect Beregovoe field to Gazprom's Unified Gas Supply System (UGS) and attain the annual project development of 12 bcm in Beregovoe. In Gazprombank, they say the stocks were used as a security instrument and the bank paid for them only the amount required to reach project capacity of Beregovoe. Beregovoe is located in Purovo area of Yamal-Nenets Autonomous Region. The reserves are estimated at 319.2 bcm of gas, 4.9 mln tons of gas condensate and 7.5 mln tons of oil. Gazprombank, Gazprom and ITERA refused to comment on the deal budget. According to the sources, Sibneftegaz owners estimated the market cost of their company at $1.5 billion to $2 billion. ITERA asked $300 million to $400 million for 51 percent in Sibneftegaz, i.e. half as much as the market price. But the monopoly halved even that price in the end. The discount is easy to explain. Without the access to UGS, Beregovoe has been idle for three years, causing hefty losses to the owners. Gazprom needs no majority ownership in ITERA now, once the latter paid for the UGS access by the better part of its best asset - Beregovoe.
Analysts think Gazprom will buy Itera's gas on the cheap. A source close to the negotiations told RBC Daily that the final price would be between $12 and $20 per 1,000 cubic meters of gas.
The Beregovoye gas condensate field is located in the Purovsky region of the Yamalo-Nenetsky Autonomous District. Its reserves are estimated at 319.22 billion cubic meters of natural gas, 4.94 million tonnes of gas condensate and 7.53 million tonnes of oil. Planned production capacity is about 10 billion cubic meters a year.
Sibneftegaz, which holds the license for the Beregovoye gas field, is a subsidiary of Russia's independent gas producer Itera. Before the deal with Gazprom, Itera controlled over 70 percent of Sibneftegaz. Itera has completed preparations for gas production at the Bergovoye field in May 2003, but Gazprom denied it access to its pipeline network, citing lack of capacity. Igor Makarov, Chairman of Itera's Board of Directors, said back in February that talks with Gazprom were close to completion.
On Thursday, Gazprom CEO Alexei Miller and Igor Makarov signed a partnership agreement for 2006-2010. In a joint statement, the two companies said Itera would participate in the expansion, reconstruction and modernization of Gazprom's gas transportation system in accordance with the general development program for the Russian gas industry through 2030. Gazprom and Itera also agreed to undertake joint infrastructure projects to transport gas condensate from the gas fields to consumers, and joint gas and petrochemical projects. Itera will sell its gas to Gaprom "on the agreed terms" and provide raw materials for Gazprom's processing facilities.
Gazprom officials said the company would buy Itera's gas at a price that would be "mutually beneficial." The price was not specified in the agreement, to be determined by further contracts. A source close to the negotiations said Gazprom had offered $12 per 1,000 cubic meters of gas several months ago, but Itera disagreed, and the talks dragged on. He said the final price was above $12 but below $20 per 1,000 cubic meters of gas.
Gazprombank's press service said the bank had purchased the controlling interest in Sibneftegaz in order "to participate in the company's profits and cover the costs connected with the long-term Beregovoye project."
Dmitry Lukashev, an analyst at ATON, puts the value of the stake at $300 million. But he said the price could be much lower. "In return for control over the Beregovoye gas field, Gazprom gave Itera access to its gas transportation network. And this costs a lot," he told RBC Daily. Dmitry Tsaregorodtsev, at FIM Securities, valued the stake at between $300 million and $350 million. "It is important how the parties will divide responsibility on loans taken by Itera to develop the gas field (a bond issue and a loan from Sberbank)," the analyst stressed.
Valery Nesterov at Troika Dialog thinks Gazprom will pay for Itera's gas slightly more than it pays to LUKoil and Nortgaz, at between $20 and $30 per 1,000 cubic meters. And ATON's Lukashev says Gazprom might simply take gas from the field. "Most probably, gas produced at the Beregovoye field will be divided between the companies in proportion to their stakes in the project. In this case, Gazprom would have 51 percent of gas," he told RBC Daily.
Tsaregorodtsev, at FIM Securities, warns that Itera could become a minority financial partner in Gazprom's projects. But this would not satisfy Itera's owners, and they might pull out of business. Valery Nesterov disagrees, seeing the deal as allowing Itera to survive. He does not expect Itera's owners to withdraw from business, arguing that if they were ready for that, they would have sold the whole of Sibneftegaz to Gazprom. "In light of the recent acquisition of a block stake in Itera by India's Sun Group, there's no reason to bury Itera. It seems Itera does not want complete independence from Gazprom," Nesterov noted.

Gazprom to buy gas from Rosneft

July 3, 2006 RBC News - Russia's state-owned oil company Rosneft will supply gas to the gas transportation system of gas monopoly Gazprom. The agreement was reached at the meeting between Rosneft President Sergei Bogdanchikov and Gazprom CEO Alexei Miller on Thursday, Channel One reported. Eduard Tropin, General Director of Rosneft-Purneftegaz (the main production arm of Rosneft), said on Wednesday that his company was in talks with Gazprom to supply between 27 and 28 billion cubic meters of gas a year to the Gazprom system. Rosneft-Purneftegaz hopes for the gas supplies to begin in 2012 or 2013. Miller said his company planned to sign documents for long-term cooperation on joint projects with Rosneft in Eastern Siberia and the Far East. The documents were being prepared by a joint coordinating committee, he added. Rosneft-Purneftegaz has proven reserves of 268 million tonnes of oil and condensate. The company currently develops 23 fields. Its output of oil and condensate is expected to nearly double to 19.6 million tonnes by 2017. Rosneft-Purneftegaz hopes to produce about 10 million tonnes in 2006 and 2007 and 11 million tonnes in 2008. The company has produced 173 million tonnes of oil and condensate since it started operations. Rosneft-Purneftegaz's authorized share capital of RUR 4.455 million is divided into 83.525 million ordinary and 27.842 million preference shares with a face value of RUR 0.04. Rosneft has a 83.09 percent stake in the company. Rosneft's companies produced 74.6 million tons of oil and condensate in 2005, an almost 3.5-fold increase on the previous year, and gas output was up 39.2 percent at 13.1 billion cubic meters.

Sunday, July 02, 2006

Gazprom to sell 80% of Shtokman gas via marketing company

MOSCOW, June 30 (RIA Novosti) - Gazprom [RTS: GAZP] is planning to sell 80% of natural gas produced at the giant Shtokman gas deposit through a marketing company, the energy giant's deputy CEO said Friday. Alexander Ryazanov said the remaining 20% would be sold through Gazprom's export arm, Gazexport. The Shtokman field holds an estimated 3.2 trillion cubic meters of natural gas and 31 million metric tons of gas condensate in the Barents Sea, off Russia's Arctic coast.

Gazprom to pick Shtokman project partners by August

MOSCOW, June 30 (RIA Novosti) - Gazprom [RTS: GAZP] is planning to select partner companies to develop the giant Shtokman gas deposit off Russia's Arctic coast by August, the energy giant's deputy CEO said Friday. "We would like to complete [selection] by August 1, because after that I'm going on vacation," Alexander Medvedev said. Gazprom said earlier it would select partners after the annual shareholders meeting that took place Friday. 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. Gazprom will select two or three partners from the shortlist to form a consortium for the project. The deposit holds an estimated 3.2 trillion cubic meters of natural gas and 31 million metric tons of gas condensate in the Barents Sea, off Russia's Arctic coast. Some $12-14 billion will be invested in the project's first phase, while production will start in 2011.

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