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Saturday, June 30, 2007

Gazprom Overestimated E.On

// They may not let the Germans into the Yuznho-Russkoe deposit
June 26, 2007 - Kommersant by Oleg Gavrish – Negotiations on the exchange of assets between gazprom and e.on as part of the project to develop the yuzhno-russkoe deposit may fail. the monopoly's management has stated that, if its german partners do not accept their conditions by the end of the summer, they may be excluded from the project. industry analysts say that the assets offered by e.on are cheaper than the russian assets, and gazprom is justified in asking for supplemental payment. if e.on renounces its share in the yuzhno-russkoe deposit, it may be offered to the dutch gasunie. deputy chairman of the gazprom supervisory board alexander medvedev stated yesterday that the company intends to reconsider the conditions for the exchange of assets between e.on as part of the project to develop the yuzhno-russkoe deposit. “the key question in the negotiations is to what extent the assets that have been proposed correspond to our strategic goals and match our proposal in price,” medvedev said. he specified that, if the negotiations are not concluded by autumn, the deposit will be launched into industrial exploitation without e.on. “it would be desirable that, if someone joined in the development, that they did so before the launch, not after it,” he noted. press secretary of the e.on office in moscow sergey babkin declined to comment on gazprom's statements. a kommersant source in e.on confirmed, however, that gazprom proposed assessing the assets offered for exchange again. “we are still hoping to reach an agreement and overcome the disagreement by the end of august, since this is a very serious project with large income,” the source said. last year, gazprom and the german e.on ag signed a framework agreement on exchanging assets so that the german partner received 25 percent minus one share in the yuzhno-russkoe deposit and gazprom received 50 percent minus one share in the hungarian e.on foldgaz storage and e.on foldgaz trade, as well as 25 percent plus one share in the e.on hungaria gas and electricity company. another 25 percent of yuzhno-russkoe is to go to wintershall (which is controlled by basf). negotiations with wintershall have been completed, although no agreement has been signed yet. industry experts also assess the assets offered by gazprom as more expensive than the e.on shares in the hungarian companies. troika dialog analyst valery nesterov thinks that 25 percent minus one share in yuzhno-russkoe costs $1-1.2 billion. the e.on hungarian assets, in the opinion of janos petofi, general director of wholesale gas distributor magyar gt, cannot cost more than $800 million “considering their degree of wear and low capacity.” nesterov suggests that the difference in the value of the assets is the source of disagreement between gazprom and e.on. another reason gazprom considered the transaction with the hungarian assets insufficient is market conditions for natural gas in hungary. according to medvedev, there are “questions concerning the system of subsidizing in hungary that creates uncertainty in the plan for income receipts and thus the cost of the companies that e.on is proposing.” a gazprom source told kommersant that the rules on the market today allow only a small part of all gas to be sold at market prices to industrial users. the rest of the volume has to be sold by the company to the public at lower than market prices. nesterov thinks that gazprom is demanding that the german company make an additional payment for the difference in the value of the assets or else pay for its share in yuzhno-russkoe completely with money. “otherwise gazprom may give the quarter share in nord stream to the dutch gasunie, which would agree quickly to gazprom's conditions,” nesterov thought. gazprom spokesman yesterday said that there are no negotiations of that type underway and that the company can develop the deposit without a third partner if need be.

Friday, June 29, 2007

Gazprom the Omnipotent

06-21-2007 – Moscow News by Marina Pustilnik – It seems that in modern-day Russia gas monopoly Gazprom has acquired something of a demigod status. It certainly behaves that way. The most recent demonstration of Gazprom's disregard for the rules of proper business conduct came this week. The monopoly announced that until 2014 it won't have enough natural gas to supply the needs of the Far East. To combat this, the acting CEO Alexander Ananenkov suggested that the operator of Sakhalin-1 oil and gas project, which is being run by US giant ExxonMobil under a production-sharing agreement, should be obligated to sell the gas it produces to Gazprom instead of exporting it. Meanwhile, in October 2006 ExxonMobil signed a preliminary agreement with China's CNPC regarding deliveries of Sakhalin gas. Granted, the agreement is non-binding, but forcing ExxonMobil to forego lucrative shipments to Asia in favor of selling to Gazprom is pushing the envelope too far. Not content with that proposal, and feeling that its current gas-producing assets (which give the company the largest gas reserves in the world) are not enough, Gazprom has also declared its desire to join the Sakhalin-3 project. Part of the project's deposits has been given over to Rosneft, which plans to develop them together with China's Sinopec. A number of other deposits are currently held by Rosnedra, which plans to conduct an auction for the right to develop them by the end of the year. Gazprom, however, does not want to take part in the auction: it simply asked the government to give it the licenses for development of these reserves. There once was a time when I defended Gazprom every time I wrote about it, saying that there is nothing inherently bad about having a strong, state-controlled corporation that forms a foundation of the country's economy. I cited examples of other state-run oil and gas corporations, such as Norway's Statoil (64 percent owned by the government) or Saudi Arabia's Aramco (fully state-owned). I pointed out that Gazprom is 49 percent owned by private investors, including foreign ones, and therefore operates for profit, not political purposes. I kept closing my eyes to common sense, trying to come up with explanations as to why Gazprom constantly behaves in such a "no-rules-for-us" way. But this time the gas monopoly is plainly overstepping all boundaries. Gazprom's insistence on receiving licenses to Sakhalin-3 deposits prompted Natural Resources Minister Yury Trutnev to take a timeout to consider the suggestion. "I don't like the idea of simply giving something away to somebody with no competition, even if it is such a respected company as Gazprom," Trutnev said. Finance Minister Alexei Kudrin was even more direct about his disagreement with Gazprom. "This is absurd," he said. "When Gazprom deems it necessary, it's a state enterprise that receives deposits free of charge; but when it's profitable, it becomes a private company and stops supplying gas under the limit. This is simply untenable!" Unfortunately, the position expressed by Alexei Kudrin and even the doubts of Yury Trutnev seem to be a minority opinion among Russian authorities. Gazprom is perceived as the horse that will drive the carriage of the financial well-being of President Putin's allies, after the election of 2008. As such, it needs to hold as much authority and assets as possible. Ordering ExxonMobil to thwart gas export plans in favor of Gazprom may provoke a lot of criticism from the international media and politicians, and may even stir unkind feelings in China, whose economy is largely dependent on external supplies of energy sources. Such aspects of the situation, however, fail to trouble either Gazprom's management or the authority figures, who give the gas monopoly a carte blanche to behave the way it does. As usual, the idea of building a strong "national champion", competitive on the world markets, has been squandered in favor of personal enrichment and delusions of grandeur.

Thursday, June 28, 2007

TNK-BP sells stake in giant Siberian gas field to Gazprom

MOSCOW, June 22 (RIA Novosti) - British oil major BP Plc's Russian venture, TNK-BP [RTS: TNBP], will sell its controlling stake in a vast Siberian natural gas field to state-controlled energy giant Gazprom [RTS: GAZP], the companies said Friday. The sale of a 62.9% stake in the Kovykta field comes after months of pressure from Russian regulators, and its price tag is considered by analysts to be well below the deposit's market value. The Russian gas monopoly will acquire the stake in Rusia-Petroleum, owned by Anglo-Russian joint venture TNK-BP, which holds the license for the Kovykta field development, and a 50% stake in a smaller East Siberian company constructing gasification facilities, for $700-$900 million. The sides will agree on an exact price in three months. BP, TNK-BP and Gazprom also agreed to form a strategic alliance to invest at least $3 billion in oil and gas projects in Russia. Under the deal, TNK-BP retains an option to buy a 25% stake plus one share at an "independently verified market price" in the East Siberian gas field, a top manager of the company said. TNK-BP's managing director, Viktor Vekselberg, said at a Kremlin meeting with First Deputy Prime Minister Dmitri Medvedev and officials from BP and Gazprom that the option could be increased. The British oil major said it was satisfied with the outcome of the negotiations. BP CEO Tony Hayward said in a statement: "This historic agreement lays the ground for powerful co-operation between BP, TNK-BP and Gazprom." However, analysts viewed the deal as a face-saving agreement for BP, reminiscent of Shell's sale of a controlling stake in the Sakhalin II oil and gas field off Russia's Pacific coast last year, also for a knock-down price. Viktor Vekselberg said he admired "the talent and professionalism of Gazprom management" in organizing the negotiations. In the lead-up to the deal, environmental and licensing authorities complained that the company operating the Kovykta field was not meeting production targets, and repeatedly threatened to withdraw Rusia Petroleum's license. The license issuer, the Federal Agency for Subsoil Use, said earlier in June it had postponed for two weeks a decision on revoking the license over the company's underproduction. In late May, the natural resources ministry launched a repeat check into the deposit after Rusia Petroleum failed to correct previous license violations. The ministry said the license was bound to be withdrawn, and that it could be offered for competitive bidding at the government's discretion. However, license revocation threats were repeatedly put off, and Russian business daily Kommersant quoted industry analysts as saying the fate of the license hinged on negotiations between TNK-BP and Gazprom, ongoing since last year.

Gazprom pushes for Sakhalin III license-1

MOSCOW, June 15 (RIA Novosti) - Gazprom [RTS: GAZP] moved Friday for the government to waive competitive bidding procedures when issuing licenses to develop natural gas deposits, eyeing the Sakhalin III project in the Far East. Alexander Ananenkov, a deputy chairman of the Russian energy giant's management committee, told a parliamentary commission: "We would like a law to be passed under which licenses would, in exceptional circumstances, be issued at the discretion of the Russian government to ensure the implementation of intergovernmental agreements on natural gas deliveries from Russia." He said the existing license distribution system jeopardizes, in particular, an intergovernmental agreement with South Korea, adding that to ensure stable gas supplies, the license for the Sakhalin III project should be issued to Gazprom. He said there is no other resource base except Gazprom to ensure that Russian gas shipments to South Korea start in 2012 as planned. The field in the Sea of Okhotsk holds over 800 million metric tons (5.86 billion bbl) of oil and more than 900 billion cubic meters of gas in estimated reserves. The state-controlled oil company Rosneft holds a license to develop the Venin block off Sakhalin Island. It holds a 49.8% in the block's operator, Venineft. The region's Sakhalin Oil Company and China's Sinopec each own the remaining 25.1%. U.S. companies Mobil, Texaco, and Exxon won a tender for licenses on the three remaining blocks of the field in 1993 under a production-sharing agreement (PSA), but the Russian government annulled the results of the tender in 2004, citing changes in tax laws on PSAs. Gazprom said earlier it aims to become a major oil and gas producer and distributor on Sakhalin Island and is interested in buying the entire gas deposits under the Sakhalin I project. The project, operated under a production-sharing agreement by Exxon Neftegas Limited, a subsidiary of U.S. oil major ExxonMobil, is located on Sakhalin's northeastern shelf, and is expected to bring around $52.2 billion to the Russian budget by 2054, when production is scheduled to end.

'Other deals' slow Gazpom-E.ON talks

06.14.2007 - Upstream OnLine - Russian gas giant Gazprom said today that talks about jointly developing the Yuzhno-Russkoye gas field, in Siberia, with Germany's E.ON had been slow because it was so busy with other parts of its portfolio. "One of the reasons why we couldn't close the transaction with E.ON on time was the fact that we had to close a number of projects that diverted a lot of human resources," Gazprom's deputy chief executive Alexander Medvedev told Reuters. "It did indeed slow down the pace of talks. But it will resume more actively now," he told a news conference. Last year Gazprom agreed to sell a stake of 25% minus one share in its Yuzhno-Russkoye field to E.ON's Ruhrgas unit. E.ON agreed to pay Gazprom €1.2 billion ($1.6 billion) and to give it just under 50% of its Hungarian gas trading and storage units. E.ON holds around 6.4% of Gazprom's stock. Last month a German newspaper said Gazprom wanted to charge E.ON more for the stake because it thought the value of its gas had risen since the original deal. But the German company said there were no special problems. Another German firmplayer, BASF is also involved in Yuzhno-Russkoye. Its Wintershall subsidiary has 35% minus one share in Severneftegazprom, the Gazprom-controlled company that is developing the field. Both E.ON and Wintershall are also minority partners in the Gazprom-led Nord Stream pipeline, which will supply gas from Yuzhno-Russkoye under the Baltic Sea to Germany. Gazprom has promised 9% of the pipeline to Dutch gas outfit Gasunie in return for a share in a Dutch pipeline to Britain. The 9% will come out of E.ON and Wintershall's stakes in Nord Stream. Gazprom has not said how it will compensate them for the loss of their equity, nor has it completed the deal to bring Gasunie in as a minority shareholder in Nord Stream.

Gazprom set to raise stake in Wingas to 50% -1

WINGASMOSCOW, June 14 (RIA Novosti) - Russian energy giant Gazprom [RTS: GAZP] intends to raise its stake in Wingas, a joint venture with Germany's Wintershall to 50%, the head of Gazprom's export arm said Thursday. "The deal is at the stage of technical completion," said Alexander Medvedev, the head of Gazprom Export. Wingas GmbH was formed in 1993 as a strategic alliance between Gazprom and Wintershall, a wholly-owned subsidiary of Germany's largest industrial gas consumer, BASF AG. Gazprom currently holds 36% of shares in Wingas and will raise its stake to 50% minus one share. Medvedev also said that the Yuzhno-Russkoye gas deposit in West Siberia was expected to be launched in fall. Gazprom will develop this gas field in partnership with Wintershall, whose stake in the project will be 50% minus one share. The Yuzhno-Russkoye deposit holds more than 1 trillion cubic meters of natural gas and will be a core source of supplies for the $10.5-billion Nord Stream Gas Pipeline, an ambitious Gazprom-managed project to pump natural gas to Germany across the Baltic Sea. Wingas intends to invest around 3 billion euros (about $3.9 billion) in the development of European gas infrastructure by 2015, the Russian-German joint venture said in a statement. The funds will largely be used to expand Germany's overland section of the gas transportation system, especially to build gas pipelines to connect them to the Nord Stream project and to build new gas storage facilities in Europe, the statement said.

Wednesday, June 13, 2007

Yuzhno-Russkoye talks 'have stalled'

06.11.2007 - Upstream OnLine - Gazprom deputy chief executive Alexander Medvedev said today that talks with Germany's E.ON over the joint development of the Yuzhno-Russkoye gas field, in Siberia, have stalled, according to reports. "The market changes, the pricing outlook changes and naturally that has to be taken into account," Medvedev told German business daily Handelsblatt. Last year the two companies signed an agreement under which E.ON will acquire 25% minus one share in the gas field for €1.2 billion ($1.6 billion) plus minority holdings in its Hungarian subsidiaries. Earlier press reports indicated that Gazprom now wants E.ON to pay more for the stake in order to reflect rising natural gas prices. However, Medvedev declined to provide any specific details on the nature of the talks between the two energy giants.

Tuesday, June 12, 2007

Gazprom Neft nets earnings jump

05 June 2007 - Upstream OnLine - Gazprom Neft said today its net profit under US generally accepted accounting principles increased 31% year-on-year in 2006 to $3.7 billion. The company said its sales increased 38% in the reporting period to $20.17 billion and earnings before interest, taxes, depreciation and amortization climbed 27% to $5.17 billion. Gazprom holds a 75% stake in Gazprom Neft.

Gazprom acquires 12.5% stake in Belarus pipeline

BelarusMINSK, June 6 (RIA Novosti) - Russian energy giant Gazprom [RTS: GAZP] has acquired a 12.5% stake in Beltransgaz, the first of four installments under a deal with Belarus' gas pipeline operator, the Belta news agency said Wednesday. "Today, a 12.5% stake in Beltransgaz has been transferred into Gazprom's ownership," it said citing the government property management agency. Gazprom Monday paid $625 million to Belarus for the first 12.5% stake in Beltransgaz ahead of schedule, which will go to the republican national development fund. The May 18 deal to buy 50% in Beltransgaz for $2.5 million in four equal installments by 2010 is expected to tighten Gazprom's operational control of the Yamal-Europe pipeline, thus far its main export route to Central Europe running through Belarus. The Russian energy giant said earlier that the Belarusian pipeline was worth $3.3 billion, well below the $5 billion valuation Belarus had long insisted on. The final deal was largely concluded late last year as Russia and Belarus became embroiled in an oil and gas dispute after Gazprom, keen to bring former Soviet republics in line with market rates for energy supplies, doubled the gas price to $100 per 1,000 cubic meters.

LUKoil and Gazprom Neft to register joint venture soon

RBC, 09.06.2007, St. Petersburg 17:12:43.A joint venture between LUKoil and Gazprom Neft may be registered in the next three months, Vagit Alekperov, CEO of the Russian oil giant, told journalists today at the 11th Saint Petersburg International Economic Forum. He added that both companies were actively working to get the new company registered. As reported earlier, the new company will focus on various oil and gas projects, geological survey, exploration, production, and transportation of hydrocarbons, among other things.

Saturday, June 02, 2007

Gazprom Neft Forced to Pull Out Of Sakhalin

June 01, 2007 - Gazprom’s target is to become the biggest subsoil operator in the Sakhalin shelf and the monopoly is still interested in Sakahal-3 and Sakhalin-4 projects, Gazprom Management Committee Deputy Chairman Alexander Medvedev declared yesterday. Meanwhile, the license of Gazprom’s Gazprom Neft for Lopukhov block (the juncture of Sakhalin-4 and Sakhalin-5 projects) expires today and Federal Agency for Subsoil Use (Rosnedra) has showed no will to extend it. ”Participation in the Sakhalin-3 tender of Natural Resources Ministry is one of our priorities. We are waiting for provisions to be set forth for this project. Sakhalin-4 project is also the subject of our interest. We are willing to become the biggest subsoil operator in the Sakhalin shelf,” Medvedev made clear yesterday. Gazprom that currently owns 50 percent plus a stock in Sakhalin Energy, the operator of Sakhalin-2 project, announces from time to time the ambitions plans for the Sakhalin. Quite soon, however, the monopoly could be stripped of one of its licenses there. The geological exploration license for Lupukhov block of TNK-Sakhalin (Gazprom Neft owns 75 percent and Sakhalin Oil Co. holds 25 percent) expires today. But due to the violations revealed by inspections of Natural Resources Ministry (September 2006) and confirmed by Rosnedra (April 2007) the company was recommended to voluntary part with the license with any and all prolongation excluded. The final decision against extending the license was made past week, said an anonymous source close to Rosnedra. The negotiations are still underway; they are slated for today actually, Gazprom Neft representatives Natalia Vyalkina assured.

Gazprom revises 2007 investment program

RBC, 01.06.2007, Moscow 10:19:33.Gazprom's management has revised its investment program for 2007 by boosting it by 1.4 times to RUR762.3bn (approx. USD29.43bn), the company's press office reported today. The Board of Directors of the Russian energy holding will review the new document in the near future. According to the new program, capital investment will amount to RUR319.78bn (approx. USD12.35bn), which is RUR40.78bn (approx. USD1.57bn), or 11.31 percent, less than the company's program had previously provided for. Long-term investment grew 2.6 times to RUR442.52bn (approx. USD17.09bn). Gazprom's management explains the need to revise the company's investment program by purchases of Sakhalin Energy, Beltransgaz, and Mosenergo.

Gazprom in talks about Sakhalin-1 gas

31.05.2007 - RBC - Yuzhno-Sakhalinsk – The shareholders of the Sakhalin-2 project are still in talks over the purchase of the whole amount of gas, produced as part of the Sakhalin-1 project, Deputy CEO of Gazprom Alexander Medvedev told a press conference in Yuzhno-Sakhalinsk today. Medvedev pointed out that it would be a logical step to purchase gas from Sakhalin-1, as the Sakhalin-2 project was actively expanding.

Gazprom, Kazmunaigaz sign deal to set up JV

kazakhstanMOSCOW, June 1 (RIA Novosti) - Russia's Gazprom and Kazakhstan's KazMunaiGaz signed a series of agreements Friday to set up a joint venture to process Kazakh natural gas, the Central Asian state's prime minister said. The former Soviet allies will create a joint venture in Russia's Urals city of Orenburg to process gas from nearby fields in Kazakhstan. Its maximum capacity is expected to reach 30.6 billion cubic meters a year in 2012. Kazakhstan is expected to supply about 16 billion cubic meters a year. Speaking to the Russian president, Karim Masimov said that "all issues and formalities were settled last night and this morning." The 15-year joint venture deal and agreements regulating supplies, prices, and other terms was signed by Karachagansk Petroleum Operating B.V., which runs the gas fields, and KazRosGaz, a venture established by the Russian energy giant and KazMunaiGaz in 2002. Output will be largely supplied back to Kazakhstan and a minor part exported. Gazprom [RTS: GAZP] earlier said the deal with KazMunaiGaz would allow the Orenburg plant to increase output. Production at the Orenburg gas deposit, the main source for the plant, has been falling since 1997. President Vladimir Putin welcomed the agreements: "That is good news... I know our Kazakh colleagues are satisfied with the prices and terms [of the agreements]." Kazakhstan's energy and mineral resources minister said earlier Kazakh gas would be supplied to Russia "at less than $145 per 1,000 cubic meters." Russia's average gas price for Western Europe is $250.

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