Russ Oil-Gas

28 December 2007 - Upstream OnLine - Russia's gas export monopoly Gazprom will increase capital investment by 43% in 2008 to a record level of almost $20 billion as it speeds up development of Arctic fields and new pipelines. Gazprom has prioritised equity investment over capital expenditures for several years because of massive new asset purchases despite investor criticism over inadequate new -production investment amid stagnant mature-field output in Siberia. Yesterday the world's largest gas producer said its state-controlled board had approved its capital investments, which will rise to a record of 479.4 billion roubles ($19.41 billion) in 2008 from 335.5 billion roubles in 2007 and 324.9 billion in 2006, Reutes reported. The capital investments will be equally split between gas production and transportation. Long-term financial investment will fall by 48% to 230.7 billion roubles from a record of 443.86 billion in 2007 and 133.7 billion in 2006. Capital investment will go toward the Bovanenkov and Kharasavei fields on the Arctic Yamal peninsula, the company's next source of big gas output, and Shtokman on the Barents Sea. More funds will also be invested in new pipelines to connect Yamal to the existing system of trunk pipelines, which also needs to be expanded, Gazprom said. Gazprom's 2007 financial investments soared after the company agreed to buy 50% in the Sakhalin 2 oil and gas project, previously led by Anglo-Dutch supermajor Shell for $7.45 billion, and a controlling purchase of Moscow utility Mosenergo. Next year Gazprom said it will have to buy a 50% stake in state oil company Rosneft's unit Tomskneft in a deal valued at $3.66 billion, and pay $625 million to further increase its stake in Belarus' national pipeline network. The company said some of the financial investment will also go toward Sakhalin 2, its new Nord Stream pipeline to Germany and Shtokman, but gave no details and did not explain why those were rated as financial rather than capital investment. The company, which has a total long-term debt including affiliates of around $45 billion, making it Russia's most indebted company by far, will borrow 90 billion roubles next year. Gazprom's investment plans are regularly revised and approved by the state, even after the financial year is over. It has repeatedly failed to cap borrowing at the pledged levels of 90 billion roubles in previous years. This year, it has said its total borrowing needs stood at 420 billion roubles.