Foreign Correspondence

[Amaunet]

Russia Rosneft to court Total with huge oil reserves
Reuters, 04.02.04, 5:09 AM ET - ANALYSIS

It seems like the U.S. oil majors are getting a little here and there but are missing out on some big contracts as of late. Before Bush we were players. Lot of money lost.

The average voter might be oblivious but you can bet big business is taking notice. The Iraqi contracts are nothing compared to the deals lost on a worldwide basis due to this administration’s policies. Just as the high price of oil has the ability to hurt our economy and market so also does this.

Ironic, Bush the oilman hurts U.S. oil interests, Bush who seeks hegemony will go down in history as the president who blew America’s dominant status. -Am
#msg-2750441

By Dmitry Zhdannikov

MOSCOW, April 2 (Reuters) - French Total <TOTF.PA> may well become the next Western oil major to invest in huge reserves in Russia, not by buying an equity stake in a private firm, but in partnership with a state company, analysts said on Friday.

But they added the French giant should be prepared to wait until Russia's state oil firm Rosneft completes expanding its flagship Vankor project in Eastern Siberia by drilling new wells and acquiring neighbouring fields.

After consolidation is completed, Total may find it hard to resist booking up to two billion barrels of proven reserves, analysts said. But they added that Rosneft may follow its usual practice and ask Total to fund the entire multi-billion dollar cost of the remote project until the first oil is produced.

"Total has been more successful than its market peers in following its production and reserves growth strategy. But it still needs a second generation portfolio and Vankor is meeting this target," said Adam Landes from Renaissance Capital.

"The bigger Vankor is, the bigger are the possibilities of the deal," he added. Total has a small production sharing deal in Russia's north, Kharyaga, and a joint exploration project with Rosneft on the Black Sea.

The major has long sought a bigger role in Russia as its key rivals, like BP <BP.L> and Royal Dutch/Shell <SHEL.L>, have actively expanded in the world's second largest oil exporter, one of the few places where reserves are still up for sale.

Market players have speculated that the French giant might try to acquire a stake in Russia's fifth largest oil firm Sibneft <SIBN.RTS> after it demerges from its troubled partner YUKOS <YUKO.RTS> later this year.

"I think Vankor is a more real option even if it gives no immediate access to oil production," said Steven Dashevsky from Aton brokerage. "Total has always said it is more interested in big projects rather than equity deals".



CONSOLIDATION OF REMOTE RESERVES

Total has long planned to develop Vankor, which holds 905 million barrels of oil reserves, in partnership with the field's license holder Anglo Siberian. But Rosneft bought a controlling stake in that firm last year and changed its management.

Total has said it was optimistic of clinching a deal on Vankor, one of Russia's largest untapped fields, since it is already partner of Rosneft on the Black Sea.

But Rosneft's president Sergei Bogdanchikov said this month he wanted to boost reserves of the Vankor project to 250-300 million tonnes (1.8-2.2 billion barrels) by drilling new wells and buying fields nearby.

Bogdanchikov, a close ally of President Vladimir Putin, told Reuters this month he believed that Russia should encourage Western investment via exploration projects, rather than allowing majors to buy equity stakes in existing private firms.

Rosneft is in talks with the owners of Slavneft -- Sibneft and TNK-BP <BP.L> -- to buy the nearby Tagulskoye and Suzunskoye fields, which hold 660 million barrels. The first oil could be produced in 2007 and output reach 280,000 bpd next decade.

"By boosting reserves we want to increase Vankor's profitability," said a Rosneft official. "It is probably premature to talk about possible partnerships until the new scale of the Vankor project becomes clear."

Landes said he believed Rosneft, a medium-sized 440,000-bpd producer with Kremlin-backed management, would anyway need an Western partner as it had consolidated too many projects requiring heavy investments in recent years.

"I think we will be facing a BP Sakhalin-style development on Vankor," he said, referring to a BP decision this month to fund the entire $3-5 billion exploration cost of its joint venture with Rosneft on the giant Sakhalin-5 block.

However, industry sources said oil evacuation from Vankor could become the main stumbling block for Total as unlike Sakhalin, which lies close to Asian markets, Vankor is located far from existing pipelines and ports.

Rosneft says it is still undecided on the evacuation route. One option would be to build a $1 billion, 900-km (560-mile) link to the trunk pipelines of state monopoly Transneft, which typically allows only one third of output to be exported.

Another option would be to build a pipeline to the Arctic port of Dudinka to ship the entire output via the Kara and Barents Sea to European markets.

Copyright 2004, Reuters News Service


http://www.forbes.com/business/energy/newswire/2004/04/02/rtr1321599.html