RUSSIAN PETROLEUM INVESTORshare.thomsonreuters.com/assets/dm/RPI/RPInovdec.pdf · oil and gas producing regions. Abroad, Rosneft intends to assess potential oil and gas opportunities

RUSSIA TO LIFT GAZPROM’S EXPORT MONOPOLY

The Russian government on 30 October 2013 approved a draft law allowing companies other than Gazprom to export liquefied natural gas (LNG). The decision puts an end to Gazprom’s longstanding gas export monopoly, although the company will still remain the monopoly exporter of pipeline gas. Under the new law, Russia’s largest independent gas producer NO-VATEK and state oil champion Rosneft will now be able to export LNG. The authorities hope that the law will come into force in 2014 once it is approved by the lower and upper houses of the Russian parliament and signed by the president. In addition to the liberalization of LNG exports, the government may be about to deliver another blow to Gazprom: the minis-tries are considering changing the formula to calculate the Mineral Extraction Tax formula, which could increase Gazprom’s tax burden by RUB 126 billion per year (~$4 bn).

Investment/Gas9 Gazprom investment plan to exceed 1 trillion rubles10 Gazprom has announced its strategic leadership ambition11 Table-Gazprom investment program in 2012-201313 Map – Gazprom’s trunk pipeline system

Corporations14 Russia and China: partnership development and new loans for Rosneft17-18 Table – Energy milestones in talks between Russia and China19 Map – Russian export outlets to China

Projects21 Putin brings new investment from Vietnam and Korea22 Vietnam’s challenges in Russia23 Russia gets its Sea of Okhotsk resources approved by UN

Transactions26 Rosneft still hungry for acquisitions30-31 Table –Rosneft oil&gas output after big mergers32 Russneft’s strategic maneuvers36-37 Table –Russneft oil&gas output in 201338 October M&A transactions overview42-45 Table – M & A transactions in September

Briefs46 Regional48 Corporate

Statistics50 September’1359 October’13

2

Table of Contents

POLITICAL AND BUSINESS INTELLIGENCE FOR ENERGY INVESTORS IN THE FSU

VOLUME XIX, ISSUE 11-12, NOVEMBER-DECEMBER 2013

The Russian government has been actively debat-ing lifting LNG export restrictions for companies other than Gazprom since 2012 under heavy lob-bying by Rosneft and NOVATEK. The discussion was initiated by NOVATEK, Russia’s second-largest

GOVERNMENT

By Inna Gaiduk 9

14

In This Issue:Gazprom investment program will exceed 1 trillion rubles

Gazprom board of directors approved an increase of the investment program in 2013 to 1.026 trillion rubles from 705 billion rubles. Adjustment of investment program is due to increase of long-term investments in Gazprom electricity business development and the growth of investments into priority strategic projects in the field of gas production and transportation. Priority strategic projects in the field of gas transportation system construction are the second line of Bovanenkovo-Ukhta pipeline, Southern Corridor and South Stream.

Russia and China: Strategic Energy Allies

During Russian Prime Minister Dmitry Medvedev’s 22-23 October visit to China, Russian and Chinese companies signed a number of important energy-related documents. A Rosneft-Sinopec memorandum committed Rosneft to sell 100 million tons of crude worth $85 billion to China over a 10-year period on a pre-paid basis. Rosneft and CNPC agreed on scheduled milestones for the launch of a refinery in Tianjin and on the supply of crude feedstock for the refinery. NOVATEK agreed to sell 3 million tons of LNG a year from the Yamal LNG project to CNPC over 15 years, with an extension option. Gazprom and CNPC came closer to signing a commercial contract. .

Rosneft: No End to Acquisitions in Sight

Hardly a month passes without news about Rosneft’s ongoing or planned mergers and acquisitions. After its mega-acquisition of TNK-BP, Rosneft acquired Itera, Taas-Yuryakh Neftegazodobycha, essentially agreed to buy a stake in SeverEnergia from Italy’s Enel, is seeking approval to buy out the Russian government’s share in the Novorossiysk Commercial Sea Port, and is likely going to acquire LUKOIL’s stake in the National Oil Consortium, active in Venezuela. The company is also seeking consulting expertise to identify M&A opportunities among the independent companies in most of Russia’s oil and gas producing regions. Abroad, Rosneft intends to assess potential oil and gas opportunities in Latin America, Africa, and the Middle East where it is looking to buy assets and participate in new projects and upcoming tenders for mineral resources.

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RUSSIAN PETROLEUM INVESTOR

2 Russian Petroleum Investor • © Thomson Reuters 2013

RUSSIAN PETROLEUM INVESTOR VOLUME XIX, ISSUE 11-12, NOVEMBER-DECEMBER 2013

gas producer, which requested that the Ministry of Energy allow it to export LNG following a meet-ing between company head Leonid Mikhelson and Russian President Vladimir Putin on 19 Novem-ber 2012 (See “NOVATEK Wants Gazprom’s LNG Export Monopoly Cancelled”, Russian Petroleum Investor, January’13).

The proposal to lift Gazprom’s LNG export monop-oly has been strongly supported by the Kremlin’s powerful energy chief Igor Sechin, who also serves as the head of Rosneft, a company that would ben-efit greatly from gas sector liberalization. Sechin formally proposed abolishing Gazprom’s monopoly on LNG exports from offshore gas fields at a meet-ing of the Presidential Commission for the Fuel and Energy Sector (FES) on 13 February 2013 (See “Putin Puts Things Right in FES”, Russian Petro-leum Investor, March’13). Interestingly, Sechin had previously opposed NOVATEK’s own proposal to lift Gazprom’s export monopoly, but at the Febru-ary meeting he vocally favored the liberalization of LNG exports, arguing that – as opposed to pipeline gas exports – Gazprom’s monopoly would not be threatened by LNG export liberalization because the gas exporters will target fundamentally differ-ent markets. In this regard, Russian gas produc-ers are competing not with each other, but with other supplies around the world. Sechin’s concerns were echoed by President Putin, who warned that “strengthening and diversifying Russian gas supplies to the global markets is a very important issue for Russia.”

The draft bill passed at the end of October provides for changes to the Russian law On Gas Exports and the law On the Basic Principles of

GOVERNMENT

RUSSIA TO LIFT GAZPROM’S EXPORT MONOPOLY (continued from p.1)

State Regulation of Foreign Trade. “This is a very serious and significant decision, which to some extent implies abandoning the export monopoly,” Prime Minister Dmitry Medvedev said about the bill. However, he noted that the changes will not give carte blanche to new exporters. “[The bill] establishes criteria to be met by any company engaged in gas exports. Nevertheless, this is al-ready a very significant change for our natural gas market, which is very much monopolized because of well-known reasons,” Medvedev said. “We hope that [the bill] will create additional opportunities for the development of the energy sector and will allow us to gain a foothold in the rapidly growing economies concentrated in the Asia Pacific coast,” he added.

The authorities hope that the law will come into force in 2014, but the bill first has to be approved by the State Duma and Federation Council as well as signed by the President. “We hope that the bill will be approved by the Duma before the end of 2013,” Energy Minister Alexander Novak said.

Russia, the world’s top natural gas producer, has been slow to develop its liquefaction capacity. Gazprom operates Russia’s sole LNG plant, a 10 million tonne per year (mmtpa) facility on Sakha-lin Island, through a consortium including Royal Dutch Shell and Japan’s Mitsui and Mitsubishi.

EXPORT LIBERALIZATION COULD HELP NOVATEK AND ROSNEFT According to Novak, the LNG bill proposes grant-ing gas export rights to two groups of companies

RUSSIA INCREASES OIL AND GAS EXPORTS

In October 2013 Russia boosted its daily natural gas production to 2.02 billion cubic meters (bcm), up by 14 percent compared to September. The growth is due to a sharp increase in Gazprom’s output, the Energy Ministry reported. In absolute figures, the October production increased by 18 percent, month-on-month, to 62.7 bcm. Gazprom’s output rose by 22 percent to 46.2 bcm. However, Gazprom’s total gas production fell by 0.84 percent to 388 bcm in January- October 2013 compared to the same period of last year.Taking advantage of the favorable market situation in Europe, Gazprom increased its

gas exports to the EU and Turkey by 15.7 percent in January-October 2013 compared to the same period last year, according to Gazprom Export.Outside the CIS, Gazprom’s gas sales rose to 131.03 bcm in January-October 2013, up from 113.2 bcm in the same period last year. In October, Russian gas exports to Europe and Turkey grew by 17 percent, to 12.58 bcm, a more than 20 percent year-on-year increase compared to 10.74 bcm in October 2012.Gazprom attributed the growth in exports to the timely injection of significant gas volumes into underground storage facilities before the start of the cold

season, while its many European customers have been stocking up on the fuel later than usual in 2013.

GAS PRODUCTION IN RUSSIA, BILLION CUBIC METERS

48,2

37,8

39,5

62,7

53,2

54,2

0 10 20 30 40 50 60 70

October'13

September'13

October'12 Total inRussiaGazprom

Russian Petroleum Investor • © Thomson Reuters 2013 3


besides Gazprom and its affiliates. The first group includes subsoil users with licenses issued before 2013, who will be authorized to construct liquefac-tion facilities or supply gas to other companies’ facilities.

The second group includes companies with at least 50 percent state ownership that own licenses for hydrocarbon deposits located in Russian territorial waters or the continental shelf, including the Black Sea and Sea of Azov offshore areas. These com-panies are authorized to produce LNG from gas extracted from these deposits or from the compa-nies’ production-sharing agreements.

Thus, NOVATEK, which plans to complete the construction of an LNG plant in Russia’s Arctic by 2017, and Rosneft, which aims to produce LNG jointly with ExxonMobil in the Far East, should receive LNG export rights along with Gazprom.

RUSSIAN LNG: BETTER LATE THAN NEVER Russia is the world’s largest producer of natural gas but has only one liquefaction facility: Gaz-prom’s Sakhalin-2 LNG plant, with a nameplate capacity of 10 mmtpa. Russian LNG exports ac-count for just 4.5 percent of the world market.

The Russian government is committed to boosting its share of world LNG output, as LNG trade con-tinues to grow faster than pipeline-based supplies. New liquefaction and gas transport technologies have reduced both natural gas lifting costs and LNG production costs. This has increased economi-cally feasible gas recovery volumes around the world and should lead to enhanced competition for export markets.

At the same time, the active growth of the econo-mies of China, India and other Asia-Pacific coun-tries will lead to an increase in the demand for hydrocarbons and will open new export opportuni-ties for Russia. Demand for LNG imports is also ex-pected to grow in Europe. The growing prominence of spot LNG supplies to Europe offers increasing flexibility for both exporters and consumers, and is already creating competition for Russian pipeline gas supplies. Europe’s LNG import capacity cur-rently is equivalent to around 50 percent of the total pipeline import capacity.

According to a report from the Skolkovo Energy Institute, these changes in the global energy mar-ket will be particularly significant in the natural gas industry. The gas sector is being exposed to LNG as a tradeable commodity. While prior to the 2000s the natural gas market was largely divided into regional segments (Europe, North

America, and Asia-Pacific), the development of gas liquefaction technology is effectively transform-ing the gas market into an interconnected global market, similar to the market for oil. In addition, the development of liquefaction technology poses new challenges for gas producers, which take on capital-intensive gas production projects but no longer have the guarantee of a customer base via long-term supply contracts. Thus, the decision to expand the number of Russian companies export-ing LNG should help Russia increase its share in the global gas market, maintain stable prices for gas and commodities as a whole, as well as control competition between local producers, the Skolkovo report said.

“The need to expand Russia’s LNG exports is driv-en by changes in the global markets and the faster growth of LNG consumption in the world, especial-ly in the Asia-Pacific region,” Novak said after the cabinet meeting during which the draft law on the LNG export liberalization was approved. “If we ex-pect that general gas consumption will rise by 0.9 percent annually until 2030, then the growth rate for LNG consumption will make up 4-5 percent over the same period. If today’s LNG consumption amounts to 240 million tonnes per year, then this figure will reach 360 million tonnes by 2020 and 480 million tonnes by 2030,” he added.

According to the Energy Ministry, the current prac-tice of having a ‘single export channel’ for Russian LNG trade does not provide an adequate incen-tive to ensure funding for the construction of new LNG plants. In order to avoid competition between

GOVERNMENT

(continued from p.2)RUSSIA TO LIFT GAZPROM’S EXPORT MONOPOLY

NOVATEK LANDS SECOND CUSTOMER FOR YAMAL LNG

Spain’s Gas Natural Fenosa agreed with NOVATEK on a long-term contract to buy 2.5 million tonnes of LNG per year from the planned Yamal LNG facility. According to industry sources, the contract will cover a 20-year period. This is NOVATEK’s second contract for supplies from Yamal LnG, which the company plans to launch in 2016.The first 15-year contract for the supply of 3 million tonnes of LNG per year the company signed with China National Petroleum Corp (CNPC), a 20-percent shareholder in Yamal LNG. France’s Total is the third shareholder in Yamal LNG. Gas sales from Yamal LNG to Gas Natural Fenosa will represent approximately one tenth of

Spain’s total LNG consumption. The facility is planned to produce 16.5 million tonnes per year of LNG using feedstock gas from the South Tambei field, which has an estimated 1.3 trillion cubic meters of reserves, as well as from the Gydan field. The development of both fields will benefit from the tax and customs exemptions extended to liquefaction projects. “The Yamal LNG contract is among the most important contracts in the Gas Natural Fenosa portfolio. In the absence of access to Russian pipeline gas supplies, deliveries from Yamal LNG are extremely important to us.” the Spanish company said in a statement.The announcement of NOVATEK’s agreement with Gas

Natural Fenosa followed the Russian government’s decision to liberalize the country’s LNG exports.CNPC, which was the first customer to secure LNG supplies from the new plant, helped NOVATEK to attract a consortium of Chinese banks to finance construction of the facility. NOVATEK is currently holding talks on future LNG supplies with Japan, Korea, and India. The project’s investment is estimated at $20 billion.NOVATEK and CNPC have agreed to link the Yamal gas price formula to the Japanese Crude Cocktail (JCC) benchmark. Gas Natural Fenosa did not specify the duration and price of its contract with NOVATEK.



Gazprom has lifted its restric-tions on customers in the Bal-tic states that prevented the re-sale of gas imports from Russia. Gazprom’s decision to drop the traditional ban on re-sale of Russian gas to third par-ties came under heavy pres-sure from the European Union, which is currently investigat-ing the company’s alleged an-titrust violations in various EU member states. This develop-ment has led a major Lithuani-an gas consumer, Lietuvos En-ergija, to seek opportunities to buy gas in neighboring Latvia,

where the fuel currently costs by about a quarter less than Russian gas, according to the business journal Verslo zinios.

Two of the four largest Lithu-anian energy companies, all of which have gas trading licens-es, unofficially confirmed to Verslo zinios that their contrac-tual obligations to Gazprom no longer include a prohibition on the sale of Russian gas to third parties.

According to the newspaper, Gazprom has also lifted the re-strictions on the Latvian gas

trading company Latvijas Gaze, which now can become a gas supplier for Lietuvos Energi-ja. According to Lietuvos En-ergija’s general director Dalius Misiunas, the company is still bound by “take or pay” obli-gations, which require Lietuvos Energija to consume a mini-mum of 85 percent of the con-tracted gas or pay for unused volumes. He also said that the company “has already consult-ed with neighboring countries” about the possibility of procur-ing cheaper gas throughout the Baltics.

GOVERNMENT

RUSSIA TO LIFT GAZPROM’S EXPORT MONOPOLY (continued from p.3)

Russian LNG exporters for international markets, the bill proposes that individual companies should submit obligatory information on their gas exports to the Energy Ministry, which will also fill the role of issuing licenses for hydrocarbon exports. This role used to be filled by the Ministry of Industry and Trade.

The Energy Minister hopes that the new law will help Russia boost investment in LNG produc-tion and the construction of LNG plants. “Today Russia produces 9.6 mmtpa of LNG as part of the Sakhalin-2 LNG project, which has Gazprom as the controlling shareholder. This represents approxi-mately 4.5 percent of the global LNG market. If the planned new liquefaction projects are completed, and hopefully their completion will be stimulated by the adoption of this law, we can increase the LNG production to 35-40 million tonnes by 2020, that is, increase the Russian share in the global LNG market up to 10 percent. By 2030, produc-tion could reach 70-80 million tonnes. This law’s adoption can help to implement major liquefaction projects such as Yamal LNG, Vladivostok LNG, and the construction of Rosneft’s planned LNG plant on Sakhalin,” Novak said.

Moscow has all the tools to become an important player in the global LNG game, despite Russia’s late entry into the market: the country has huge natural gas resources and access to trade routes, said Kyle Davis, a partner at the law firm Golts-blat BLP. “From the point of view of consuming countries, the more LNG the better, because it has an impact on prices. And even those who are late to enter the market still contribute to the fact that customers get what they want: the diversification of supplies, non-oil-linked prices and a healthy spot market,” he said.

Raiffeisenbank analyst Andrey Polishchuk believes that the new law is being adopted mainly in the interests of NOVATEK, whose co-owner Gennady Timchenko is a long-time associate of Russian President Vladimir Putin. In general, in Polish-chuk’s opinion, Russia is a little late in entering the fast-growing LNG market, as Gazprom had long focused on pipeline-based exports, under-estimating the rapid development of the spot gas market. “Russia will have to play catch-up, but the leap can be made quickly: while Gazprom itself had been slow to decide on the expansion of the Sakhalin-2 LNG plant, now NOVATEK and Rosneft have new projects to offer,” he said.

MET CHANGES FOR GAZPROMIn another blow to Gazprom, President Putin on 1 October signed into law a new formula for the calculation of the mineral extraction tax (MET), which will come into force in July 2014 and depend on ten parameters (See “Legislative Innovations of the Government”, Russian Petroleum Investor, October’13). The new method, agreed less than a month after the government approved the cur-rent MET formula, will increase the tax burden of Gazprom, which forms a significant share of the Russian budget.

Previously, the MET was set annually in three-year increments. The new law establishes a formula by which the tax rate will be set automatically de-pending on a number of parameters. In particular, the formula will take into account fuel prices in the global and domestic markets, gas transportation tariffs, macroeconomic indicators, and other vari-ables. Some proposed variables include the depth of natural gas deposits and regional peculiarities of gas production assets.

According to Gazprom, its total tax payments increased by 71 percent from 2009 to 2012 and exceeded RUB 1.9 trillion (~$61.3 bn) in 2012. The increase was primarily due to Gazprom’s higher MET payments, which increased by more than RUB 262 billion (~$8.5 bn), or almost threefold, in the period.

The changes were approved despite the fact that Russia’s Deputy Finance Minister Sergei Shatalov at the end of September said that the MET for gas producers is likely to remain flat from 2013-2014, or even slightly decrease because of the freeze in gas tariffs. “Now, when the decision is taken not to raise the tariffs, the [tax] rates will automati-cally freeze. The industry’s total [tax] payments will remain at the 2013 level. It should even be less due to some additional tax breaks,” he said.

GAZPROM LIFTS RESTRICTIONS ON BALTIC CUSTOMERS

Minister Novak: “We can increase the LNG produc-tion to 35-40 million tonnes by 2020, that is, increase the Russian share in the global LNG market up to 10 percent.”



(continued from p.4)

GOVERNMENT


September 2013 January-September 2013 2012-2013 Year-on-Year change

1. Gas production, withdrawals from storage facilities and imports

56,136.1 536,327.5 -3,244.6

Gas production (total) 53,390.9 482,543.5 4,932.4Gazprom Group 38,820.4 350,068.7 -4,918.5Gazprom 37,837.6 341,838.1 -6,901.0Oil companies 6,276.8 56,147.1 4,094.7NOVATEK 4,224.9 39,227.2 1,697.5Others 2,848.6 25,158.3 5,222.0PSA operators 2,203.0 20,172.8 819.2Gas withdrawals from underground storage facilities (USF)

108.1 27,630.2 -4,662.6

Including from Russian USF 3.4 22,970.8 -6,913.0Gas imports 2,298.5 23,774.6 -1,601.3Gas from Central Asia 2,217.5 22,681.4 -1,750.3Including gas from Kazakhstan 880.9 9,546.2 12.2Including gas from Turkmenistan 937.5 8,228.7 8.5Including gas from Uzbekistan 399.1 4,906.5 -1,771.0Changes of reserves in the Unified Gas Supply System (UGSS)

439.1 3,826.5 -1,588.3

South Caucasus gas 81.0 1,093.2 149.0Technical losses 201.7 2,384.6 318.4Gas deethanization and stabilization 101.2 937.3 -6.42. Gas distribution 56,136.1 536,327.5 -3,244.6Supply of gas to Russia 29,930.9 323,217.9 -1,477.3Including technical needs of UGSS and USF 3,468.3 28,880.8 -1,025.3Supply to the UGSS 21,656.0 249,417.8 -2,999.1Own needs of oil companies 2,074.9 18,128.1 -512.6Consumption of United Energy Systems of Russia

11,118.0 118,538.8 484.1

Injection of gas into USF 5,373.6 39,784.7 -7,683.2Including USF in Russia 4,431.2 35,248.4 -6,909.6Increase in gas reserves in the UGSS 354.4 3,292.5 -2,824.7Gas exports (total) 20,441.3 170,068.9 8,752.9Gas exports via the UGSS 19,345.3 159,306.8 8,803.0Including gas originating from Central Asia 2,216.1 22,651.1 -1,752.7Including gas originating from the South Caucasus

81.0 1,093.2 149.0

CIS (total) 5,825.5 36,603.5 -6,684.6Including gas originating from Central Asia 31.4 541.7 264.0Far abroad (total) 13,519.8 122,703.3 15,487.6Including gas originating from Central Asia 2,184.7 22,109.4 -2,016.7Including gas originating from the South Caucasus

81.0 1,093.2 149.0

LNG exports, million cubic meters 1,096.0 10,762.1 -50.1LNG exports, thousand tons 816.0 8,011.9 -37.3

Source: Central Dispatch Unit of Fuel Energy Complex (Russian Federation Ministry of Energy)

GAS INDUSTRY INDICATORS, JANUARY-SEPTEMBER 2013 (million cubic meters)



GOVERNMENT



However, according to Kommersant, as early as the end of September the Russian government started discussing changes in the newly approved MET for-mula, which could potentially result in Gazprom’s tax burden growing by RUB 126 billion (~$4.1 bn) next year.

According to the newspaper’s sources, Russia has again raised the issue of introducing export duties on gas supplied by Gazprom to Turkey via the Blue Stream pipeline. The measure could add about RUB 45 billion (~$1.5 bn) to the budget per year at the current supply level of 15 billion cubic meters (bcm). In 2011, the Finance Ministry suggested that if Gazprom were to pay the export duty, then this would slow the planned increases in domestic gas tariffs as well as the MET, but the parties then failed to reach an agreement.

Gazprom’s tax burden may be set to rise anyway, as the proposed MET-calculation method does not take into account the export duty and transporta-tion costs for gas exports to non-CIS countries. Under the current formula, Gazprom’s MET rate would make up RUB 791 per 1,000 cubic meters (mmcm) in 2014, while without taking into account the export duty and transportation costs, the figure would grow by more than 32 percent to RUB 1,045 per mmcm ($33.7 per mmcm), according to Konstantin Cherepanov of UBS. Although, it is im-possible to accurately calculate the rate as the new formula includes the production complexity coef-ficient, different for each deposit and is expected to be defined by the producer.

Based on this assessment and Gazprom’s 2014 production plan of 496 billion cubic metres, the company’s MET payments could rise by RUB 126 billion (~$4.1 bn) in 2014.

ROSNEFT SEEKS NEW BENEFITS AT GAZPROM’S EXPENSEThe idea to raise the MET and to introduce some other charges for the gas industry is believed to have come from Rosneft, which is trying to per-suade the government to provide the oil company with new benefits for its own projects, two sources told Reuters. Kommersant also quoted its sources as saying that it was Rosneft’s Sechin who sug-gested that the government should further change the MET formula adopted in late September. Rosneft, which needs tax incentives to develop its Far Eastern oil projects, has proposed to cover the possible budget losses by increasing the tax ap-plied to Gazprom, Kommersant said.

Experts are skeptical about the prospects of

Sechin’s plan. A Reuters government source be-lieves that Rosneft’s proposal will not be accepted: “such work is not being conducted, and such changes are not planned. Given that Russia has halted the price indexation (for natural monopo-lies), that is not possible,” the source told Reuters.

“There is indeed such an initiative of Igor Ivanovich (Sechin). He suggests a whole range of additional budget revenues that can be extracted from Gaz-prom, such as by changing the MET calculation formula, eliminating the export duty exemption for Blue Stream, and increasing the import duty for the Central Asian gas, which Gazprom buys. [Sechin] has confidence that the gas industry is not saturated in comparison with the oil sector, but the passage of these measures is not a given,” another source told Reuters. “And why does the budget need the extra money? In order to support Rosneft and give it incentives. The plot is quite primitive in its simplicity,” the source added.

“I do not believe that [changing the MET for natu-ral gas] will happen,” said a Reuters source. “We have the formula, it works. What Rosneft offers is simply an increase in the tax burden on Gazprom. This decision is purely political – if it is decided that Gazprom should pay more, then yes, it can happen, but it can be done by simply increasing the rate for Gazprom, instead of changing individ-ual parameters inside the formula, if there is such political decision.”

PLANNED DOMESTIC MARKET REFORMSBy mid-November, the Russian government could consider giving Gazprom the right to sell its gas at prices below the level set by the Federal Tariff Service (FTS), said Deputy Energy Minister Kirill Molodtsov. Currently, the relevant ministries are discussing the possibility of allowing Gazprom to sell its gas 5-10 percent cheaper, down from the previously discussed discount of 20-30 percent. According to Molodtsov, the macroeconomic outcome of the possible changes is not known. However, “losing independent producers in terms of gas supplies to the market is quite possible,” FTS head Sergei Novikov has earlier said.

Russia plans to gradually liberalize gas and power prices and eventually fully free them to introduce competition and encourage energy efficiency.

According to the Russian legislation, Gazprom has to sell gas in the domestic market at the prices set by FTS, while independent gas producers have no such obligation and have gradually increased their market share by undercutting Gazprom. This

GAZPROM’S MET PAYMENTS COULD RISE BY RUB 126 BILLION (~$4.1 BN) IN 2014



increase is largely due to the fact that the smaller producers can show significant pricing flexibility unlike Gazprom, restricted by the state-capped prices. The proposal to let Gazprom bring down prices is included in the list of measures to curb the growth of electricity prices. According to the Energy Ministry, giving Gazprom the right to trade gas at prices below the FTS level could help power companies to save around RUB 15 billion (~$480 mn) in 2014. “The expected effect is up to a 10 percent reduction in the gas prices for power sec-tor and the largest consumers in the Urals and the European part of Russia,” said a report from the Energy Ministry.

As a compensation measure for the independent gas producers, Russia could freeze or reduce the tariffs for gas transportation along the Gazprom-operated Unified Gas Supply System, the Ministry suggests. However, this suggestion was not includ-ed into the final list of the proposals for curbing power prices.

The government had to push the issues of freez-ing tariffs for natural monopolies and cutting gas

prices in the domestic market in order to deal with the massive defaults in payments for energy: indeed, delinquent payments for natural gas con-sumption have amounted to more than RUB 100 billion (~$3.2 bn) as of 1 October 2013.

On 29 October 2013, Prime Minister Dmitry Med-vedev chaired a meeting focusing on urgent mea-sures to reduce non-payment in the natural gas supply sphere. Medvedev said that the government should fully ensure the collection of payments for gas consumption, stressing that there will be no more ‘gas communism’. At the same time, it is clear that the massive non-payment for gas con-sumption is caused by the still low incomes in the Russian regions, especially in the rural and remote areas. Annual price increases for gas, electricity and motor fuels have only exacerbated the issue of non-payment. This is another reason why Gazprom may be allowed to reduce its prices.

However, even if Gazprom is allowed to reduce its prices, Gazprom’s tax burden is not going to decrease and the gas giant will fall under a stricter tax regime starting as early as next year, Medvedev

GOVERNMENT



September 2013 January-September 2013 2012-2013 Year-on-Year change (%)

TOTAL GAS EXPORTS VIA RUSSIAN PIPELINE NETWORK

19,345.3 159,306.8 105.8

Exports of Russian gas 17,048.2 135,562.5 108.3Russian gas exports to far abroad 11,254.1 99,500.7 121.1Western Europe 10,984.3 96,293.6 122.7Lithuania 162.1 2,083.1 86.6Latvia 84.0 674.4 74.3Estonia 23.7 449.6 121.1Russian gas exports to near abroad 5,794.1 36,061.8 83.8Armenia 130.0 1,273.0 96.3South Ossetia 0.8 17.8 98.3Belarus 1,424.5 14,451.4 101.0Kazakhstan 37.1 608.5 97.8Moldova 156.0 1,525.3 70.6Ukraine 4,045.7 18,185.8 74.0Exports of gas originating from Central Asia 2,216.1 22,651.1 92.8Central Asia gas delivery to nearest abroad 31.4 541.7 195.1Kazakhstan 31.4 541.7 195.1Central Asia gas delivery to far abroad 2,184.7 22,109.4 91.6Georgia 0.0 103.0 63.3Western Europe 2,184.7 22,006.4 91.8Exports of gas originating from the Caucasus 81.0 1,093.2 115.8

Source: Central Dispatch Unit of Fuel Energy Complex (Russian Federation Ministry of Energy)

RUSSIAN PIPELINE GAS EXPORTS. JANUARY-SEPTEMBER 2013 (million cubic meters)



said. The situation is further complicated by the fact that Gazprom is not only the major natural gas supplier in Russia, but also a very large investor in the economy. The company invests substantial funds into the implementation of Russia’s gas-ification projects. For example, Gazprom’s 2013 investment plan calls for RUB 32 billion (~$1 bn). Gazprom cut investment into those Russian re-gions with significant unpaid gas usage bills.

GAZPROM PUTS FORWARD ITS OWN PROPOSALSGazprom has put forward a number of proposals aimed at solving the issue of non-payments for gas supplies by customers in the Russian domestic market. In particular, Gazprom is concerned with non-payment by residential consumers. Gazprom head Alexei Miller, speaking at the 29 October government meeting, said that in addition to mea-sures aimed at ensuring domestic gas supplies, Russia needs to implement measures to ensure the timely payment for gas consumption. According to Miller, Gazprom has submitted its proposals to the Ministry of Energy.

Another problem that Gazprom hopes to address is the presence of a great number of intermediaries that distort the residential gas market as a result of the state reform of household and communal services. Since the state has completely delegated control of household and communal service provision to various management companies and so-called homeowners associations (HOAs). These groups have flooded the market to mediate the relationships between suppliers and consumers, sometimes via the use of fraudulent schemes. Ac-cording to Miller, Gazprom has frequently encoun-tered situations whereby residential customers are able to pay for gas, but the money is lost or delayed due to the activities of these intermediar-ies. Miller said that Gazprom’s proposals include the establishment of specialized gas payment processing centers and the exclusion of gas pay-ments from the general household services bills. This measure will help to solve the intermediary problem in the gas supply sphere, Miller said.

Gazprom has also proposed a thorough assess-ment of tariffs for heating at the regional and municipal levels. Miller is concerned with the acute problem of unjustified increases in energy tariffs. “The accumulation of unpaid gas bills is also fu-eled by economically unjustified tariff increases at the regional and municipal levels. The authorities need to carry out an audit of heating tariffs,” Miller said. According to him, Gazprom has also re-quested the government to require power compa-

nies to pay for their gas supplies from the revenue received from their sales of power.

Deputy Prime Minister Arkady Dvorkovich has suggested that Russia should provide all social institutions and continuous cycle enterprises with backup sources of heat and electricity, while tight-ening the rules for cutting off gas and electric-ity supplies for delinquent customers. “This is a complicated issue, but all decent countries do it. And eventually they have no problems because of that. You just need to get used to it. It is hard the first time that your gas or electricity is shut off. It is certainly a shock, and people would not tolerate it a second time, and organizations would also not tolerate it. We should be prepared for this, and, in the end, it should be done,” Dvorkovich said.

Prime Minister Medvedev instructed the govern-ment to work together with Gazprom to prepare legislative amendments providing for the restric-tions of gas supplies for delinquent consumers and setting liability limits. “As for limiting gas supplies for unscrupulous companies without harming consumers, it is a subtle point. I would like to see the government together with Gazprom finalize changes in the legislation,” Medvedev said at the meeting on payment discipline in the gas supply sector.

GOVERNMENT





Gazprom board of directors approved an increase of the investment pro-gram in 2013 to 1.026 trillion rubles from 705 billion rubles. Adjustment of investment program is due to increase of long-term investments in Gazprom electricity business development and the growth of investments into prior-ity strategic projects in the field of gas production and transportation. Prior-ity strategic projects in the field of gas transportation system construction are the second line of Bovanenkovo-Ukhta pipeline, Southern Corridor and South Stream.

Traditionally, Gazprom adjusts its investment program in the end of the year. Originally taking underestimated program, the company comes from the fact that while production and exports fall, it is hard to defend a major investment program in the government, as Gazprom must receive government approval for its investments since 2012. The same situation was in late 2012, when investment program for 2013 was being adopted.

That’s why on December 21, 2012, Gazprom ap-proved a very modest investment program of 705 billion rubles - minimal in recent years. But even then, experts predicted that it would grow at least up to 1 trillion rubles. It just happened. Board of direc-tors at its meeting on October 29, 2013 increased investment program this year by 320.7 billion rubles compared with a program approved in December 2012. In the new edition, the total amount of invest-ments amounted to 1,026.1 trillion rubles.

The volume of investments increased by 123.65 billion rubles and amounted to 782.1 billion rubles. Of these, development expenditures rose by 120.06 billion rubles to 775.2 billion rubles. The volume of long-term investments increased by 197.05 billion rubles and amounted to 244.01 billion rubles.

Adjustment of the investment program for 2013, as Gazprom explained, is needed to increase long-term investments in Gazprom’s electricity business devel-opment and in priority strategic projects in the field of gas production and transportation. Specification of

the budget parameters is due to changes in gas sales and prices, as well as macroeconomic indicators, the company explained.

TOP-PRIORITY PROJECTSThe new edition of the investment program for the outgoing 2013 presumes an increase of investments in strategic projects in the field of gas transportation - construction of the second line of the Bovanenkovo-Ukhta pipeline, as well as the implementation of the Southern Corridor. The Southern Corridor is used to fill South Stream with gas, and Gazprom will expand gas pipeline network in Russia and build a further 2.500 km of pipelines and ten compressor stations with total capacity of 1473 MW. The completion of Southern Corridor is scheduled before December 2019. Within the project the funds are allocated this year to prepare construction engineering, purchase pipes and equipment for pipeline Izobilnyi-Nevinno-myssk. Construction of the pipeline will be syn-chronized with the development of North Stavropol underground gas storage (UGS) in the southern part of Russia. It will improve the reliability of gas supply from underground storage during the seasonal peak loads. Adjusted investment program also presumes increasing investments in underground storage facili-ties and processing facilities, reconstruction of gas transportation facilities, design and survey works in future years to meet the deadlines for South Stream project and project in the eastern part of Russia.

As for mining, it is also planned to increase invest-ment in Kshukskoye and Nizhne-Kvakchikskoye condensate fields within the Eastern Gas Program, as well as in construction of wells in the Urengoys-koye and Yamburgskoye fields. In addition, Gazprom plans to increase investments in modernization and reconstruction of gas production facilities of Oren-burgskoye deposit.

Growth of long-term investments is reqired mainly to develop electricity projects, in particular to finance Gazprom Energoholding, TGK-1, OGK-2 and Mosen-ergo (TGK-3).

In addition, the company will provide additional in-vestment for projects in the field of motor fuel market development and for a comprehensive modernization of Gazprom Salavat Neftekhim.

Gazprom board not only adjusted investment pro-gram, but also considered a long-term strategy of the

GAZPROM INVESTMENT PROGRAM WILL EXCEED 1 TRILLION RUBLES

INVESTMENT

By Ilya Kedrov




company (see Inset 1. “The goal of Gazprom’s long-term strategy - to become a global energy leader”).

GAZPROM STEPS UP SOUTH STREAM EFFORTSSouth Stream project has additional investments in the new edition of the investment program of Gazprom for this year. Company aims to speed up the project largely due to difficult relations with Ukraine, that significantly reduced purchases of Russian gas, but at the same time started buying Russian gas in European countries that import it. It has also accu-mulated $890 million debt for gas as of November 1, and announced in November that would stop buying Russian gas by end of the year.

All this repeats scenario of previous “gas wars” and Kyiv’s siphoning gas off export pipelines to Europe, and South Stream becomes more critical for uninter-rupted gas supply to customers in Europe, as well as the other projects - Nord Stream extension and the Yamal-Europe-2.

Another reason for the need to accelerate the con-struction of South Stream is the growth of Russian gas exports to Europe in just the past few months, siad Gazprom CEO Alexei Miller. “Gazprom con-tinues to provide supply for increased demand for Russian gas in Europe. Considering stable growth of European gas demand, Gazprom is actively building South Stream. We recently started its construction in Bulgaria and will begin construction in Serbia until the end of the year. South Stream is as relevant as ever,” - said Miller.

Miller noted that gas exports to non-CIS countries amounted to 13.48 billion cubic meters in October 2013, “almost 17% more than in October 2012.” This number comprises not only the commercial export (supply of gas to the buyers), but also on the gas pumped into the European gas storages. According to CDU TEK, October export totaled 12.58 billion cubic meters of gas (+16.5% y/y). During the first four days of November, exports grew by an average of 21%.

On October 31, Bulgaria hosted a ceremony of weld-ing the first joint of the Bulgarian section of South Stream gas pipeline at the site of the compressor station “Rasovo” (municipality Medkovets, area MT. According to the press service of Gazprom, 540 km of South Stream linear part, 366 km of looping and three compressor stations will be built on the terri-tory of Bulgaria.

“South Stream will be a catalyst for economic growth in Bulgaria - the project will bring to the country 3.5 billion euro of direct investment and create more

THE GOAL OF GAZPROM’S LONG-TERM STRATEGY - TO BECOME A GLOBAL ENERGY LEADER

Gazprom board considered the long-term strategy of the company, and noted that the main strategic goal of Gazprom is to establish a leadership among global energy companies. This goal is achieved through diversification of markets and products, improvement of supply reliability, improving th performance and maximizing the use of company’s own scientific and technological potential.The strategy says that Gazprom has several competitive advantages that promote efficient and reliable operation of the company. Among them are the largest raw and powerful industrial base, unique Unified Gas Supply System (UGSS) and the ability to respond quickly to changes in any of its links, as well as deep vertical integration and significant manufacturing, scientific research and design capability. The company has a favorable geographical position between Europe and Asia, a portfolio of long-term gas supply contracts, many years of experience with foreign partners and reputation of a reliable supplier. The company has the world’s largest natural gas reserves - 35.1 trillion cubic meters. For the past eight years, reserve growth consistently exceeds gas production.

Company’s production capacity exceeds 600 billion cubic meters of gas per year. Gazprom is expanding existing fields in its traditional Nadym-Pur-Taz region. Thus, Zapolyarnoye field is now working at full capacity (130 billion cubic meters per year), and became the most productive gas deposit in Russia. Development of a deeper and more difficult deposits continues, particularly Achimov deposits in the Urengoy field. Gazprom goes into new regions: the Yamal Peninsula, Eastern Siberia and the Far East, the continental shelf. On Yamal, Gazprom created a new gas production center for the region’s largest Bovanenkovskoye field with design capacity of 115 billion cubic meters of gas per year. In the East of Russia, it formed gas production centers in Kamchatka and Sakhalin. Work on creation gas production centers in Yakutia and Irkutsk region is going on. It also formed a major gas production center on the Arctic shelf , primarily on the basis of the Barents and Kara Seas.Gas transmission system expansion is synchronized with the development of production capacities. In particular, Bovanenkovo-Ukhta and Ukhta-Torzhok pipelines have been built for transferring Yamal gas into UGSS transmission system. Sakhalin-Khabarovsk-

Vladivostok has been built for gas supplies to the Khabarovskiy Krai and Primorsky Krai. The next is ambitious project The Power of Siberia that will transport gas from Irkutsk and Yakutia gas production facilities. In the future, gas pipelines in the western and eastern parts of the country will be combined, and it will create Russian EGSS literally.Gazprom is a reliable supplier of natural gas to more than 30 countries. To access the consumers directly and to reduce transit risks the company is diversifying export routes of gas supplies to Europe. Nord Stream project has been fully realized and ita capacity may be increased. South Stream project is being implemented; Yamal-Europe-2 study is being prepared.The company is actively expanding into new markets and diversifying its products range. The main focus is on the growing market of the Asia-Pacific region. Gazprom will increase its presence in the region by an intelligent combination of pipeline gas and LNG. In particular, Vladivostok LNG project, which is focused on the APR, has already passed the investment stage. In general, the company expects to increase its share of the global LNG market with the construction of new gas liquefaction plants.

INVESTMENT


than 2,500 jobs. The new gas transmission infra-structure will increase the investment attractiveness of Bulgaria. Bulgarian consumers will receive gas at a lower price, as the pipeline goes directly from Rus-sia via the Black Sea,” - the press service quoted the head of Gazprom Alexei Miller.

Gazprom will provide Bulgaria 620 million euro for the construction of South Stream for the period up to 2022, said Bulgarian Energy Minister Drag-omir Stoynov. In the period until 2040 Bulgaria will receive 2.8 billion euro in dividends from the project, the minister said. In Bulgaria, the project is imple-mented by a joint company South Stream Bulgaria AD, established on a parity basis by Gazprom and Bulgarian Energy Holding.

On November 11, 2013, just before the beginning of the construction of South Stream Serbian section, Gazprom delegation headed by Chairman of the Board of Alexei Miller visited the Republic of Serbia,




Gazprom press service reported. Construction of the Serbian section of the South Stream pipeline will start in December, the President of Serbia Tomislav Nikolic confirmed on October 30, 2013, at a meeting with Russian President Vladimir Putin. “Conditions that your side has offered Serbia are more than the correct, - said T.Nikolich, referring to Putin. - We will fulfill everything.”

Putin noted that “Serbia’s economy will receive addi-tional 1.9 billion euros from the project.” At the same time, Russian leader noted that Russian investments in the economy of Serbia amounted to $1.2 billion. “Just like any investor, in any part of the world, we hope that these investments will create favorable conditions,” - said Putin.

The cost of South Stream is estimated at 16 billion euros ($21.5 billion), of which 10 billion euros will be spent on construction of the offshore section of the pipeline under the Black Sea. Total project cost of both Southern Corridor and South Stream will be almost $40 billion.

The length of the Russian part of the South Stream gas pipeline is 230 km, the Bulgarian - 220-230 km, the Turkish - 470 km. From the Bulgarian coast the gas will go to Serbia, Hungary, Slovenia, Italy, Croatia and Republic of Serbia within Bosnia and Herzegovina.

South Stream will consist of four threads, each of them will have annual capacity of 15.75 billion cubic meters of gas. The commissioning of the first line is scheduled for December 2015, gas supplies to Europe will begin in the first quarter of 2016. All four gas pipeline will operate at full capacity in 2018.

GAZPROM SLOWED GAS PIPELINES CONSTRUCTION IN NORTHERN EUROPEFrom a perspective of developing routes bypassing Ukraine, all pipeline projects in northern Europe - Yamal-Europe 2, as well as 3 and 4 thread of Nord Stream, - are relevant. But more Gazprom has not yet allocated any investment into these projects this year. Most interesting is that the explanation for this is the exact opposite to the one for South Stream.

The deputy chairman of Gazprom Valery Golubev said : “Now the situation allows us to pause. Demand for gas will be increased, and virtually all of our partners confirm that gas consumption will grow, and then we will have to develop new deposits. Most of the work in any case will be made on the territory of Russia. Everything related to the development of the Yamal fields, will come through the existing pipeline,”- he said, referring to the project Yamal-Europe-2.

INVESTMENT


Commenting on the prospects of expanding the Nord Stream, he said: “The decision will be made after demand for new gas volumes appears. First, we signed new contracts that guarantee loading third and fourth threads. Then we can proceed with the construction. Technically it is not a problem.” Accord-ing to Golubev, moving on to the economic expertise of new Nord Stream thread “is possible only after there is a real consumption increase in the world as a whole, it is a medium-term perspective.”

Gazprom last year announced plans to double the capacity of Nord Stream with a possible extension of the fourth line of the project to the UK. This year the project was put on hold - until the completion of the feasibility study of cheaper and more efficient “counter-Ukraine” project Yamal-Europe-2.

In April 2013, President Vladimir Putin ordered Gazprom to explore the feasibility of a gas pipeline construction from the border of Belarus through Po-land to Slovakia. In the same month, Gazprom CEO

INVESTMENT PROGRAM OF GAZPROM IN 2012-2013, billions of rubles

2012 2012 2013First

editionSecond edition

First edition

Implementation of capital investment 776.6 974.7 705.4Capital investment 709.6 890.0 658.5Upstream 253.2 262.0 213.0Bovanenkovo 93.96 88.78 60.57Medvezhye, Urengoiskoye, Yamburgskoye 36.35 38.06 35.19Kirinskoye 0 19.02 36.13Zapolyarnoye 11.74 10.71 2.01Yubileynoye 0 5.02 3.05The transport system 369.0 516.0 319.0The reconstruction and upgrading of Unified Gas Supply System

20.83 23.6 26.99

The underground storage facilities 17.3 32.0 37.0The gas distribution system 7.6 17.0 8.0Gas processing 10.3 10.0 13.0Bovanenkovo-Ukhta 128.12 201.31 102.92Ukhta-Torzhok 75.97 105.66 21.66Gryazovets-Vyborg 67.73 67.47 13.42Kirinskoye -Seacoast 0 21.22 11.87South corridor 0 8.0 82.53Gasification 0 33.76 33.4Financial investment 67.04 84.6 47.0Abroad projects 5.34 6.05 16.04South Stream 0 6.05 15.12

Source: Gazprom




Alexei Miller and CEO of EvRoPol GAZ (joint venture between Gazprom and PGNiG SA., owns the Polish section of the Yamal-Europe) Miroslav Dobrut signed a memorandum of understanding on the project implementation. The project presumes annual pipe-line capacity at no less than 15 billion cubic meters of gas. Feasibility study should be ready by mid-October 2013. Still, no one reported about its completion.

But on the other hand, Gazprom accelerates con-struction of two gas pipelines from Yamal - Bovanen-kovo-Ukhta and Ukhta-Torzhok - and construction of Yamal-Europe-2 is possible after these pipelines are commissioned.

“THE POWER OF SIBERIA” IS THE GAS PRICEGazprom investment program currently doesn’t provide any funding for the eastern giant pipeline called The Power of Siberia. Fitch rating agency estimated the cost of creating the infrastructure for exports to China, including Power of Siberia at $50-60 billion, but Gazprom said this estimate was too high. In June Medvedev in an interview with Reuters dismissed analysts’ fears that the gas from Siberia is too expensive for China and said that the Chinese project is economically viable. “Gas presence in the earth depths is great, but you should be able to make a profit. Gazprom will have competition not only with Novatek and Rosneft, but also with other projects,” - said UBS analyst Konstantin Cherepanov.

The parties plan to sign a commercial contract for the pipeline supply of Russian gas to China by the end of the year (see article in this issue “Russia and China: a large-scale energy alliance”). Energy Minister Alexander Novak, who promised a contract between Gazprom and CNPC by the end of 2013, said that al-though the price formula is agreed, the negotiations on the conditions continue. This was confirmed by Gazprom CEO Alexei Miller, who said that the petro-leum products price had been chosen as benchmark for the contract, but did not specify the products.

But analysts that negotiations between Gazprom and Beijing already protracted for years and will continue for a long time: China needs more hydrocarbons, and monopoly needs to fulfill government’s requirement to develop Eastern Siberia. So, neither side is in a hurry. Growing supplies from Central Asia - not the most stable region - do not meet Chinese require-ments for reliability of fuel supply, said Tatiana Mitrova, head of the oil and gas complex department of The Energy Research Institute of the Russian Acad-emy of Sciences (ERI RAS): “For China, it is important to negotiate with the Russian company”.

Negotiations with Beijing comprise a lot of contro-versy. The main issue is not only the price, but also the advance payment, the question whether Chinese companies get a share in the production, as well as their access to the construction of the pipe in Siberia to supply gas to China, analysts say. “You can not burden The Power of Siberia on the Russian taxpay-ers, as it happened with the Sakhalin-Khabarovsk-Vladivostok pipeline. Therefore, Gazprom wants to establish the price able to cover the high cost of the Eastern Gas Program,” - said Mikhail Korchemkin, CEO and owner of East European Gas Analysis. He added that China would prefer to have a share in the production and transportation to control the process: “But Gazprom does not like to be controlled”. The high costs of the Eastern Gas Program may not increase Gazprom value, and may even push it down if the company will not cope with cost management, said Valery Nesterov from Sberbank.

However, the key question in the negotiations - the amount of advance payment Gazprom wants to get from China for its gas, analysts say. “It can account for the lion’s share of the total capex of the project - in this case, (Chinese) can receive a big discount to the price of European supplies”, - said Vitaly Kryukov of IFD Capital. Mitrova does not believe that gas price for CNPC will be dramatically different from the average European price. “In the framework of the oil indexation Japan pays for Australian LNG $16 per million BTU, and China - $ 5, and the whole thing is in the slope of the curve embedded in the formula. Well, this is, in fact, the main subject of negotia-tions”, - she said.

China, the world’s largest consumer of hydrocarbons, has been trying for a long time to bring down the price of Gazprom raw materials. Russian gas giant offers Beijing a minimum of 38 billion cubic meters of gas per year. It almost equals the entire volume

INVESTMENT


2013-2015 GAZPROM INVESTMENT PROGRAM HIGHLIGHTS, billions of rubles

2012 2013 2014 2015First

editionSecond edition

First edition

Second edition

First edition

First edition

Investment budget 776.649 974.649 705.41 1,026.1 956.852 1283.19Capital expenditure

709.604 890.007 658.455 782.1 1034.07 1233.222

Construction 709.564 888.694 655.158 775.2 832.376 1169.694Long-term financial investment

67.043 84.642 46.955 244.01 120.783 111.456

Investment in fixed assets

1.273 1.313 3.279 6.9 3.694 2.04

Source: Gazprom




GAZPROM’S PIPELINES

INVESTMENT


of Chinese gas imports in 2012, but Gazprom tries to get a contract that would justify enormous cost of green-field in Eastern Siberia.

Beijing bought this year over 13 billion cubic meters of fuel from more cooperative Turkmenistan. Its sup-plies to eastern neighbor are expected to grow to 65 billion cubic meters of gas per year. What Gazprom tries, Novatek has already achieved - it agreed to the gas price with its first customer - Chinese CNPC, ty-ing the cost of fuel to the most “expensive” bench-mark - Japanese index JCC. JCC quotes exceed $15 per million British thermal units.

Gazprom failed to do the same: if in summer it insisted that JCC must be the basis for gas supply contract, in September the monopoly dropped this expectation.

Rosneft, meanwhile, already sold 5 million tons of LNG from its new Sakhalin plant to two Japanese companies and trader Vitol. “Novatek project will be ready in end of 2016, and it is quite possible that Novatek will be the first to enter the Chinese market with its LNG in 2017”, - said Raiffeisenbank analyst Andrey Polishchuk.

Chinese authorities were too enthusiastic to transfer their utilities from “dirty” coal to more eco-friendly gas - latest rates of gas consumption increase outstripped supply, while a country with a growing economy and population needs new energy resourc-es. On the eve of the cold months, when fuel demand peaks, Beijing assures that will try to control the increasing number of gas consumers. According to forecasts, the deficit of natural gas in China in 2013-2014 winter season may increase by 10% to 11 bcm. To implement the plan of increasing the share of this fuel in the energy mix to 8% in 2015 from current 5%, China needs to almost double imports to about 80 bcm from 42.5 billion in 2012.

China buys LNG for the average $11.8 per mln BTU. The high price is due to expensive fuel from major exporter Qatar, but deliveries from Asia and Australia are cheaper. Pipeline gas supplied from Turkmeni-stan and Uzbekistan averaged $ 8.65 per mln BTU. “China is the world’s second-largest economy, and will soon be the first. It needs a huge infrastructure for natural gas imports both LNG and pipeline,” - says Kyle Davis, partner at law firm Goltsblat BLP. So the prospects of The Power of Siberia are quite optimistic.



RUSSIA AND CHINA: STRATEGIC ENERGY ALLIES

CORPORATIONS

By Ilya Kedrov

During Russian Prime Minister Dmitry Medvedev’s 22-23 October visit to Chi-na, Russian and Chinese companies signed a number of important energy-related documents. A Rosneft-Sinopec memorandum committed Rosneft to sell 100 million tons of crude worth $85 billion to China over a 10-year pe-riod on a pre-paid basis. Rosneft and CNPC agreed on scheduled milestones for the launch of a refinery in Tianjin and on the supply of crude feedstock for the refinery. NOVATEK agreed to sell 3 million tons of LNG a year from the Yamal LNG project to CNPC over 15 years, with an extension option. Gaz-prom and CNPC came closer to signing a commercial contract. Even LUKOIL, which had not expressed any particu-lar interest in the Chinese market, discussed crude sales to Sinopec and CNPC from its West Qurna-2 project in Iraq.

A sustained flurry of political and energy talks make 2013 feel like the unofficial year of China in Rus-sia (and vice versa). China’s President Xi Jinping visited Russia twice this year, travelling to Moscow in March in his first foreign trip as President and to Saint Petersburg in September for the G20 sum-mit. The heads of Gazprom, Rosneft, and NOVATEK went to Beijing and the heads of Chinese companies came to Moscow virtually once a month (see Chart 1 “Mutual visits of Chinese and Russian leaders and top energy officials in 2013”).

Russian Prime Minister Dmitry Medvedev’s October visit to China further confirmed that the two coun-tries are working toward a large-scale energy alli-ance. Russian focus on China is evident in its con-struction of an extensive pipeline corridor including the existing 5,000-kilometer East Siberia-Pacific Ocean (ESPO) oil pipeline and the planned Power of Siberia natural gas pipeline that will run parallel to ESPO. Although the pipelines are designed to serve other Asia-Pacific countries as well, they are financed by Chinese loans and advance payments

for the future supply of Russian energy to China.

Diversification of gas supplies from Europe, Rus-sia’s only gas export market, to the Asia-Pacific is a strategic priority for Russia as demand in Europe flags and the continent lobbies for more hub-based pricing for gas. Rosneft leads Russian energy coop-eration with China with several long-term deals to sell crude to Chinese companies.

Medvedev’s Beijing trip is not the final chapter in the bilateral energy story this year: a long-awaited commercial contract for gas supplies between Gazprom and CNPC is meant to be finalized by the end of the year.

“OUR OIL COOPERATION HAS REACHED A VERY HIGH LEVEL”On 22 October in Beijing, Rosneft President Igor Sechin and Sinopec Chairman Fu Chengyu signed a memorandum on Russian crude oil exports to China in the presence of Prime Minister Medve-dev and his Chinese counterpart Li Keqiang. The memorandum calls for deliveries of up to 100 million tons of crude over 10 years on a pre-paid basis, starting in 2014. Sinopec will receive Urals blend crude through trading deals with an option for some substitution of refined products.

The companies will negotiate the price based on that obtained by the Russian company at open tenders, Rosneft said. The supplies will be 25-30 percent prepaid with a total contract value of up to $85 billion. The agreement with Sinopec will allow Rosneft to “raise extra financing for exploration and production projects and the construction of necessary infrastructure,” Sechin said.

Rosneft and Sinopec have long been partners in the Sakhalin-3 offshore oil project. On 16 October in Beijing, at a meeting of the Russian-Chinese intergovernmental commission for energy coop-eration, the two companies signed the minutes indicating that Rosneft and Sinopec had negoti-ated the financing of the development of Sakha-lin-3’s Severo-Veninsky field. In March of this year, Rosneft and Sinopec agreed on a project commer-cialization plan, including considering associated gas sales from the project to Rosneft’s future LNG plant in Sakhalin.

“Our oil cooperation has reached a very high level,” Medvedev said during an online conference in Beijing.




CORPORATIONS


THREE SALES ROUTESCommenting on the signing of oil contracts in Beijing, Russia’s Energy Minister Alexander Novak said Russia would double oil sales to China by 2017 and maintain them at that level until 2037. Deliveries will be 15.8 million tonnes in 2013, 17 million tonnes in 2014, and 30 million tonnes a year in 2017-2037, he said. The Ministry guaran-tees equal terms of access to the ESPO pipeline for all interested oil companies, Novak said. “Everyone who produces oil in East Siberia will have a possi-bility to use ESPO pipeline capacity.” According to past comments by Transneft head Nikolai Tokarev, Gazprom Neft and Surgutneftegaz also plan to increase eastward shipments, to 8 million tons and 9 million tons, respectively.

The 22 March Rosneft-CNPC agreement provides for oil deliveries to increase to 31 million tonnes, depending on infrastructure capacity, via three as yet unspecified routes. Most likely the routes include an eastern route via the Skovorodino-Mohe branch of ESPO, a western route via Kazakhstan, and a marine route via one of Russia’s sea ports. Rosneft signed a deal with Sinopec for 10 million tons a year, with the implication that it plans to sell China over 40 million tons of crude annually from 2018.

But ESPO’s annual capacity is just 37 million tons, clearly a concern for Transneft. To avoid a conflict, Rosneft’s board of directors decided a few days before the Beijing visit to pay Transneft RUB 5.975 billion for the transport of 46.8 million tonnes of oil, or 1.3 million tonnes per month, to China via the Skovorodino-Mohe pipeline spur. Payments will be made every 36 months based on a spe-cial supplemental fee of up to RUB 108 per ton (in addition to the postal tariff of RUB 2,081 per tonne for transport within Russia). Looking ahead, Transneft has said it could increase ESPO trans-port capacity to 80 million tons a year but has not actively followed up.

As mentioned above, the March agreement cites three possible routes for oil shipments to China. After Skovorodino-Mohe, the second possible route is through Kazakhstan via the Atasu-Alashankou pipeline, but customs payments need to be smoothed out. Minister Novak said in late October that Rosneft was still discussing with KazMun-aiGaz the possibility of shipping crude to China via the Atasu-Alashankou pipeline and noted that the agreement on duty-free oil shipments to Kazakhstan would expire at the end of 2013. Novak had said Rosneft planned to ship 7 million tonnes of oil each year from 2014 to China using a swap arrangement. On 11 November Rosneft, KazMun-

aiGaz, and KazTransOil signed a preliminary agreement to ship oil through Kazakhstan and to guarantee shipments.

Commenting on the Sinopec memorandum, Rosneft President Sechin said there would be two shipment routes: an eastern one via ESPO and a western one for seaborne shipments. According to Kommersant daily, Rosneft is looking at the ports of Novorossiysk and Ust-Luga for seaborne shipments. “Those are long routes, but exports via Novorossiysk could be profitable,” a source told Kommersant. Exports to Europe will not fall because “the resource base is sufficient,” sources told Kommersant.

Uralsib analyst Alexei Kokin estimates that Ros-neft is expected to produce 210-215 million tons of crude next year adjusted for TNK-BP assets, of which over 30 million tons will go to China. As reported in Kommersant, he believes the company plans to use TNK-BP’s resources to fulfill its agree-ment with Sinopec, but with Rosneft’s ambitions to supply the East Petrochemical Company – its new 30 million ton a year project – almost all of the crude it produces has already been allocated. If it overestimates the reserves of some of its large assets, Rosneft will have to look for new fields to develop.

ROSNEFT AND CNPC – A NEW BATCH OF AGREEMENTSDuring the Medvedev visit, Rosneft President Sechin and CNPC Chairman Zhou Jiping signed a document outlining milestones for the launch of a refinery in Tianjin and securing crude feedstock for the refinery. The companies confirmed that Russian crude shipments to the refinery would be made under a long-term contract on a prepaid basis.

The companies plan to make a final investment decision on the Tianjin refinery in early 2017, Ros-neft said. The launch is still slated for late 2020 or earlier.

The refinery will have a capacity of 16 million tonnes a year, with Rosneft supplying 9.1 mil-lion tonnes. The company will ship crude “for its partner, too,” Sechin said. The refinery will sell its products in Northern China and the Central Plain, including the cities of Beijing, Tianjin, the provinc-es of Hebei, Shaanxi, Henan, and Shandong, and China’s East Coast.

The companies signed a feasibility study for the refinery and held a ground-breaking ceremony, in 2010 after establishing the joint venture Vostok

Tianjin refinery launch is still slated for late 2020 or earlier. The refinery will have a capac-ity of 16 million tonnes a year, with Rosneft supplying 9.1 mil lion tones.




Petrochemicals, 51-percent owned by CNPC and 49-percent owned by Rosneft. Investment was estimated to total $5 billion, but construction never started due to the project’s poor economics. In 2012, Russia and China began talks on incen-tives for the project, including possibly granting the refinery the right to its own crude imports and oil product exports, product sales on the Chinese market, and some others. The 22 March agree-ment now allows the refinery to export refined and petrochemical products.

Rosneft and CNPC also signed a memorandum of understanding to expand exploration and produc-tion cooperation in East Siberia, CNPC said in a press release. The companies will establish a joint venture, 51 percent owned by Rosneft and 49 percent owned by CNPC. The future JV will focus on the development of the Srednebotuobinskoye field licensed to Taas-Yuryakh Neftegazodobycha, a fully-owned Rosneft subsidiary (see “Rosneft: No End to Acquisitions in Sight” in this issue).

“The consolidation of Taas-Yuryakh will allow us to establish a new oil and gas province by developing

a significant number of smaller fields in the region. Oil from the fields will go to the company’s refinery and consumers in the region and the Far East,” Rosneft quoted Sechin as saying.

Taas-Yuryakh Neftegazodobycha produces and will produce not only oil but gas as well. The deal with CNPC has significant strategic importance for Rosneft, said Vitaly Kryukov, analyst at bro-kerage Kapital, stressing that gas projects were more important. “The deals with the Chinese may help Rosneft get a strong foothold in China’s gas market. In addition, joint energy projects with the Chinese strengthen long-term ties with a large consumer that has a fast-growing crude demand. The Chinese appreciate long-term ties, this is go-ing to be important going forward,” Kryukov said.

NOVATEK JUMPING INTO CHINA’S GAS MARKETNOVATEK’s gas deals with China are probably the most impressive of all. NOVATEK Chairman Leonid Mikhelson and CNPC Chairman Zhou Jiping signed

CORPORATIONS


RUSSIA-CHINA PIPELINE TIMELINES

Although plans to build a pipeline with access to the Pacific originated in the USSR back in the 1970s, an opportunity arose in late 1990s when YUKOS began talks on an export pipeline to China. YUKOS’s President Mikhail Khodorkovsky discussed the project with CNPC in December 1999. He discussed that with the government and in July 2001 then Prime Minister Mikhail Kasyanov and China’s President Jiang Zemin signed an agreement “On the basic principles of a feasibility study for a Russia-China oil pipeline.” The pipeline was named Angarsk-Daqing. At the same time, Transneft, backed by Japan’s then PM Junichiro Koizumi, was lobbying for another route – Angarsk-Nakhodka. The company presented the project to the government in April 2002, and the two projects merged under the name East Siberia-Pacific Ocean (ESPO) in May 2003. The main pipeline would run from Angarsk to Nahodka with a branch to Daqing. But in July 2003, the Natural

Resources Ministry refused to approve the project due to the great environmental risk to Lake Baikal. In February 2004, Transneft moved the starting point from Angarsk to Taishet and the end point from Nahodka to Kozmino Bay. Construction of ESPO’s first stage from Taishet in the Irkutsk Region to Skovorodino in the Amur Region began in April 2006, and it was commissioned in December 2009. Construction of the second stage from Skovorodino to Kozmino port began in 2010 with commissioning in late December 2012. Transneft started construction of the Skovorodino-Mohe spur in April 2009 and commissioned it in August 2010. According to a 2009 deal with China, Russia has to ship 15 million tons of crude annually via the pipeline for 20 years from 2011. Rosneft received $15 billion and Transneft $10 billion in loans from Chinese banks. In 2011, the Chinese decided the Russian crude was too expensive and wrangled out a $1.50 per barrel discount.

Russia struck a new deal with China in March 2013 that includes a possible increase in crude shipments to over 30 million tons a year. The extra volumes will be supplied by Rosneft, which plans to ship 800,000 additional tons to China in 2013 and began fulfilling the obligation in late July. Rosneft and CNPC also signed a long-term (until 2038) contract in June for 365 million tons of prepaid oil. In October, Rosneft and Sinopec signed a memorandum for shipments of 100 million tons of oil to China over 10 years worth $85 billion on a prepaid basis.As to gas agreements, it was the shareholders of RUSIA Petroleum who owned the license for the Kovykta gas condensate field, not state-owned Gazprom, that were the first to contact Chinese companies. In the late 1990s, CNPC made no secret of its intention to buy RUSIA Petroleum shares, signaling that a stake in RUSIA Petroleum was a prerequisite for its participation in the export pipeline project. The countries had conflicting views on the pipeline’s Mongolian

section. China insisted on laying the pipeline around Mongolia. Russia believed that was not economically viable. Russia’s former Fuel and Energy Minister Generalov said in February 1999 that the government was committed to the development of Kovykta and the construction of an export pipeline. That month, Russia and China signed a general agreement in Moscow to do a feasibility study for Kovykta and the pipeline.After a series of asset carve-ups, mergers, and acquisitions, RUSIA Petroleum’s shareholders (SIDANCO and its subsidiary Angarsk Petrochemical Company with 40.5 percent and BP/Amoco with 20 percent) became part of TNK-BP. In the summer of 2007, independent experts commissioned by TNK-BP prepared a review of gas routes from Kovykta. Six routes were under review: one ran westward from the field and was only designed for gas shipments to the Kemerovo Region, four others ran southward around Lake Baikal and to China, and

another ran northward and partially merged with ESPO. Kovykta was finally taken over by Gazprom, which chose to delay its development until 2017.

Talks between Gazprom and CNPC about pipeline gas supplies to China date back to Gazprom’s former management led by Ram Vyakhirev who retired in 2000 and spent another year at Gazprom as a consultant. In October 2009, Gazprom and CNPC signed a framework agreement on the basic terms for Russian gas shipments to China that allowed for annual exports of up to 68 bcm – up to 38 bcm via the eastern route and up to 30 bcm via the western route. The eastern route, the Power of Siberia pipeline with a planned annual capacity of 61 bcm, will initially use the Chayandinskoye field in Yakutia as its resource base and, later, the Kovykta field in the Irkutsk Region. The western route is the planned Altai pipeline to ship gas from West Siberia to China. Signing of the gas contract is expected at the end of the year.




framework conditions for LNG sales between Ya-mal LNG and CNPC subsidiary PetroChina Inter-national. The deal is for at least 3 million tons of LNG a year over 15 years with an option to extend, Mikhelson said. The pricing formula is based on the JCC oil index (Japanese Crude Cocktail).

LNG will be sold on a DES (delivered ex-ship) basis, meaning the seller delivers the cargo to the

port, but do not unload it. The partners have yet to sign a sales agreement and will do so after a final investment decision is made on the Yamal LNG project, NOVATEK’s head said, adding that the timing for the decision remained unchanged. The company had said the final investment decision was slated for late 2013.

The Yamal LNG project includes the construction

MUTUAL VISITS OF CHINESE AND RUSSIAN LEADERS AND TOP ENERGY OFFICIALS IN 2013 (to be continued on p.18)

CORPORATIONS


Date and place

Who went where The outcome

14 January, , Moscow

Rosneft’s President Igor Sechin meets CNPC’s President

Zhou Jiping

They discussed cooperation in crude production and refining and extra crude shipments via ESPO and the Kazakh route Atasu-Alashankou.

17-18 February, Beijing

Igor Sechin visits Asia-Pacific,

including China

Sechin invited Chinese oil companies CNPC, Sinopec, and CNOOC to join offshore projects in Russia. Talks with CNPC’s President Zhou Jiping focused on the prospects of hydrocarbon shipments to China and mutually favorable conditions for cooperation in oil refining. The companies discussed CNPC’s possible participation in exploration and production projects on the Russian shelf. The company heads signed a batch of cooperation agreements, and CPC offered joint projects to Rosneft. Sechin discussed with Sinopec executives possible cooperation on Russia’s shelf and in oil refining. Rosneft’s head offered CNOOC’s Chairman Wang Yilin joint projects on offshore fields. The companies agreed to set up several working groups to discuss the prospects of joint work on the shelf. CNPC, CNOOC, and Sinopec expressed interest in cooperation with Rosneft in LNG production and sales.

25-27 February, Beijing

Russian delegation visits China,

including Energy Minister Alexander Novak, Deputy PM Arkady Dvorkovich, and Gazprom and

NOVATEK

Novak was at a meeting between Arkady Dvorkovich and Wang Qishan – the heads of the Russian-Chinese intergovernmental commission for energy cooperation – in Beijing. They also talked about the Yamal LNG project, among other things, including a possible stake acquisition by Sinopec and CNOOC. The Chinese expressed interest not only in LNG marketing, but also in buying stakes in Yamal LNG.

22 March, Moscow

China’s President Xi Jinping and Chinese

companies visit Moscow

Gazprom and CNPC signed a memorandum for Gazprom to build a spur of the Power of Siberia pipeline (Yakutsk-Khabarovsk-Vladivostok) to China with a planned capacity of 38 bcm with an expansion option to 60 bcm. Shipments will start in 2018 and last 30 years. Rosneft and CNPC signed a framework agreement on prepaid crude sales, allowing Rosneft to ship 800.000 tons more in 2013 than the existing contract. The new agreement is for sales increase to 31 million tons, infrastructure permitting, via three unspecified routes. Rosneft and China Development Bank signed a $2 billion 25-year loan agreement. Rosneft and CNPC signed an agreement on strategic cooperation in hydrocarbon geological survey, exploration, production, and sales. The countries signed an intergovernmental agreement in effect from June 19, 2013 that allows Vostok Petrochemicals (a joint venture between Rosneft and CNPC) to export oil and petrochemical products. The JV has the right to sell its oil and petrochemical products in China, as well as build infrastructure for wholesale and retail sales.

14-17 May, Saint Petersburg

Chinese delegation visits the Saint Petersburg Gas

Forum

Gazprom’s head Alexey Miller and CNPC’s head Zhou Jiping negotiated shipments of pipeline and liquefied gas to China from the Vladivostok LNG project.

30 May, Beijing

Igor Sechin’s working visit

Rosneft’s head offered CNPC’s management joint work in three areas in the Barents and Pechora seas – Zapadno-Prinovozemelsky, Yuzhno-Russky, and Medynsko-Varandeisky, and areas in the Irkutsk and Krasnoyarsk regions, and the Nenets Autonomous District.




of a 16.5 million ton LNG plant based on the South Tambei field for gas feedstock. South Tambei has proven and probable PRMS reserves of 907 billion cubic meters as of 31 December 2012. The project also includes the construction of transportation infrastructure complete with a seaport and airport near the village of Sabetta in the northeastern Yamal Peninsula.

In June 2013 at the Saint Petersburg International Economic Forum, NOVATEK and CNPC signed a cooperation agreement for the Yamal LNG project, allowing the Chinese company to acquire a 20 percent stake in the project, and giving NOVATEK an opportunity to sign a long-term contract for LNG sales to China. The deal may be worth up to RUB 16 billion (over $500 million). After the CNPC

MUTUAL VISITS OF CHINESE AND RUSSIAN LEADERS AND TOP ENERGY OFFICIALS IN 2013 (continued from p.17)

Date and place

Who went where The outcome

18 June, Moscow

CNPC’s President Zhou Jiping visits and

talks to Gazprom’s head Alexey Miller

Gazprom’s head Alexey Miller and CNPC’s President Zhou Jiping negotiated a long-term contract for Russian gas shipments to China, signing is expected by the end of 2013. Zhou Jiping surprised Russia by proposing US index Henry Hub (Henry Hub Gulf Coast Natural Gas Spot Price) for the pricing formula. Announcement was made after the talks that US spot market prices would not be used for Russian gas shipments to China.

20-22 June, Saint Petersburg

Chinese companies visit the Saint

Petersburg International

Economic Forum

Rosneft and CNPC signed a $275 billion 25-year agreement for 365 million tons of crude, meaning that Rosneft will be shipping to China 14.6 million extra tons of crude a year at $103 a barrel. Rosneft will receive $60 billion in advance payment. NOVATEK and CNPC signed a cooperation agreement for the Yamal LNG project. CNPC can acquire a 20 stake in the project, while NOVATEK has an option to sign a long-term contract for LNG sales to China.

29 August, Beijing

Rosneft’s President Igor Sechin visits

China

Preparation for the signing of two agreements with CNPC at the G20 summit in September. The first agreement is for joint projects in hydrocarbon production and transportation, and joint ventures for onshore fields in Russia, including tight fields. The second agreement is for Rosneft’s retail sales in China through a future gas station chain of up to 300 stations.

5-6 September, Saint Petersburg

China’s President Xi Jinping and Chinese companies visit the

G20 summit

Gazprom and CNPC signed an agreement on basic terms for Russian gas shipments to China via the eastern route. The agreement covers the time when shipments will begin, their volume, take-or-pay terms, timeline for sales increase, the volume of guaranteed payments, and the border transfer point. Another agreement is with PetroChina to invest $10 billion in East Siberian gas assets. Rosneft and CNPC signed no agreements at the G20 summit.

10 September, Moscow

Officials from CNPC and a consortium

of Chinese financial institutions visit

Moscow

NOVATEK, CNPC, and a consortium of Chinese financial institutions signed a memorandum on project financing for the Yamal LNG project. The consortium includes China Development Bank (CDB), Industrial and Commercial Bank of China (ICBC), Bank of China (BoC), and China Construction Bank (CCB). A final agreement with Chinese commercial banks will be signed simultaneously with all creditors that take part in the project financing.

16 October, Beijing

A meeting of the Russian-Chinese

intergovernmental commission for

energy cooperation

Russia’s Deputy PM Arkady Dvorkovich and the head of the Chinese delegation, China’s Vice Premier Zhang Gaoli, discussed the opportunities for wider energy cooperation between Russia and China. The signed minutes say that Rosneft and Sinopec negotiate financing of the Severo-Veninskoye field in the Sakhalin-3 project, and mentions joint projects in oil refining, crude exploration and production, as well as shipments of Russian power and coal.

22-23 October, Beijing

A visit by Russia’s PM Dmitry Medvedev and the heads of

Gazprom, Rosneft, and NOVATEK

Rosneft and Sinopec signed a memorandum for shipments of 100 million tons of crude to China over 10 years with an $85 billion advance payment. Rosneft and CNPC agreed schedule milestones for the launch of a refinery in Tianjin and its crude supplies.NOVATEK agreed to sell CNPC 3 million tons of LNG a year from the Yamal LNG project over 15 years with an extension option. Gazprom and CNPC reached a final agreement on a multiplier tied to the price of oil products. The companies are expected to sign a commercial contract by the end of the year. If that happens, Gazprom will be able to begin pipeline gas shipments to China in 2018-2020 and eventually raise the volume to 38 bcm a year. The shipments are expected to use the eastern route – the planned Power of Siberia pipeline from Yakutia. Immediately after it signs the contract for the eastern route, Gazprom will begin negotiations on the western route – the Altai pipeline.

Source: Russian Petroleum Investor

CORPORATIONS





deal is closed, expected before December, NO-VATEK will own 60 percent of Yamal LNG, while Total and CNPC will each have a 20 percent stake. In September, NOVATEK, CNPC, and a consortium of Chinese banks signed a memorandum for Yamal LNG financing.

LUKOIL FEELS OUT CHINA PROSPECTSLUKOIL is discussing with Sinopec and CNPC the possibility of supplying China with crude ship-ments from the West Qurna-2 oilfield in Iraq after its launch, LUKOIL’s head Vagit Alekperov said. He indicated that his company was interested in long–term contracts for one year or more with an exten-sion option. “We are interested in this market,” he

said, adding that LUKOIL was already shipping small crude volumes to Asia-Pacific via ESPO.

LUKOIL is talking about the volumes it will be receiving under the Iraqi contract, Alekperov said. As a trader appointed by the Iraqi state-owned oil sales corporation Somo, LUKOIL is already selling Iraqi crude and planning on participating in future tenders.

Alekperov met CNPC’s Chairman Zhou Jiping on 16 October in Beijing at the meeting of the Russian-Chinese intergovernmental commission for energy cooperation. The companies agreed on further strengthening and expanding cooperation, LUKOIL said, adding that the companies signed a strategic cooperation agreement in 2007 and were partners in a gas project in Uzbekistan, among other things.

Novorossiysk

Ust-Luga

Yamal LNG

Shtokman LNG

Baltic LNG

CHINA

RUSSIA

Atasu-Alashankou

Sakhalin-1 LNG

Sakhalin-2 LNGVladivostok LNG

ESPO

Power of Siberia

Oil pipeline routes

Oil sea routes

Natural gas routes

LNG routes

LNG plant

TRANSPORT ROUTES FROM RUSSIA TO CHINA

Northern Sea Route

CORPORATIONS





CORPORATIONS


MAJOR GAS DEALS STILL PENDINGMany observers had expected signing of gas agree-ments during Medvedev’s visit to Beijing, but that did not happen, and the countries are talking again about signing “at year’s end.” “I hope the gas agreements that we are close to will soon become reality,” Russia’s PM told a news conference after talks with his Chinese counterpart in Beijing. “We are finalizing the formula for Russian gas supplies to China via the eastern route. In fact, we have already agreed on the formula, but we have yet to agree on the price,” Medvedev said, adding that price negotiations were tough. “But it’s time we wrap this up and start shipping gas by pipelines to China,” Medvedev said.

Energy Minister Novak said that the heads of government meeting emphasized the need to sign a commercial contract this year for gas supplies via the eastern route with a view to raise shipments to 38 bcm a year. He also said that “the Prime Min-sters highlighted prospects for cooperation on gas shipments of 30 bcm a year via the western route.” Gazprom will be able to begin to ship gas to China via pipelines in 2018-2020 if contracts are signed this year, the minister said.

Gazprom and CNPC negotiate the possibility of advance payment for the gas, Novak said, without elaborating because “this is a commercial secret.”

“This is currently being negotiated,” he said. Asked whether the price is pegged to the JCC oil index, he said that there were several pricing indicators un-der consideration, but that these indicators do not include Henry Hub spot prices. Russian Deputy PM Arkady Dvorkovich and China’s Vice Premier Zhang Gaoli confirmed that the countries were ready to sign an agreement on pipeline shipments of Rus-sian gas to China by the end of the year, Russia’s government said on its website.

Gazprom and CNPC had been expected to sign the gas contracts either at the Saint Petersburg International Economic Forum in June or during the G20 summit. On 5 September in Saint Peters-burg, the heads of Gazprom and CNPC signed a framework agreement on Russian gas shipments to China via the eastern route. The agreement cov-ers the date shipments are to begin, their volume, take-or-pay terms, timeline for sales increase, the volume of guaranteed payments, and the border transfer point. The countries stopped short of signing a sales contract, however.

In the meantime, Beijing launched a second pipeline gas import route in July. CNPC began receiving gas through a 12 bcm a year pipeline from Myanmar that had taken three years to build. China also plans to increase shipments via the existing pipeline from Turkmenistan.



PUTIN BRINGS NEW INVESTMENT FROM VIETNAM AND KOREA

PROJECTS

By Sergei Glazkov

Russian President Vladimir Putin’s recent two-day trip to Vietnam and South Korea featured the signing of various contracts between Russian en-ergy companies and Vietnam’s Petro-Vietnam as well as a memorandum of understanding with South Korea’s Daewoo on the establishment of a shipbuilding building center in Russia. Among the Russian companies invited to participate in Vietnamese projects were Rosneft, Gazprom Neft and Gaz-prom. Vietsovpetro, the joint venture between Zarubezhneft and PetroVi-etnam, has been given the right not only to produce, but also to sell gas and gas condensate. Talks in Seoul concluded with the signing of a memo-randum of understanding between a Russian consortium including Rosneft, Gazprombank and Sovcomflot and Ko-rea’s Daewoo Ship Building & Marine Engineering on the establishment of a shipbuilding center in Russia.

Russia President Vladimir Putin made official visits to Vietnam and South Korea on 12-13 November, where he met the heads of state of both countries. The meeting between the Russian and Vietnamese presidents was followed by the signing of a number of significant contracts by major Russian energy companies with Vietnamese partners. Russian state-owned oil company Zarubezhneft, long active in the Vietnamese energy sector, and Vietnam’s national oil company PetroVietnam signed a memorandum on developing cooperation within their Rusvietpetro project. Rosneft and PetroVietnam signed docu-ments on the joint development of Vietnamese and Russian offshore resources. Gazprom and Petroviet-nam agreed to create a joint venture for the produc-tion of natural gas-based vehicle fuels in Vietnam, while Gazprom’s oil arm, Gazprom Neft, will help Vietnam to expand its only oil refinery. In addition, Russia’s Ministry of Natural Resources and the Envi-ronment and the Ministry of Natural Resources and

Environment of Vietnam together signed a memo-randum of understanding in the field of geology and mineral resources.

Vietnam and Russia have a long history of coopera-tion in the energy sector. Vietsovpetro, a 50/50 joint venture between PetroVietnam and Zarubezhneft, has been involved in offshore hydrocarbon devel-opment in Vietnam since 1981. In 2010, the two companies prolonged their JV agreement to the end of 2030.

Gazprom has been working in Vietnam’s offshore since 2006. Rosneft, also not new to the Vietnam-ese shelf, agreed to work jointly with PetroVietnam in Russia’s Arctic Pechora Sea in exchange for the Rosneft’s participation in a new offshore project in Vietnam. Rosneft plans to invest about $100 million in the project’s exploration and early stage drilling.

For strategic reasons, Gazprom is eager to expand its presence on Asia-Pacific markets. According to industry experts, Vietnam’s gas sector is constrained by its inability to meet domestic demand or to export during a period of economic growth. “The rapid growth of Vietnam’s economy means that all of the gas produced in the country is consumed domesti-cally. And this trend will continue in the future. Moreover, the government is working hard to curb domestic energy prices in order to minimize their negative impact on the growing economy,” said Grigory Birg, a co-director of the analytical depart-ment at InvestCafe.

However, the situation may change now that Russian companies are involved: the Vietsovpetro joint ven-ture has acquired the right not only to produce, but also to sell its gas and gas condensate production.

RIGHT TO EXPORTRussia and Vietnam agreed on the conditions for Vietsovpetro’s production and sale of gas and gas condensate. The joint venture is currently discussing prices for natural gas and gas condensate with its Zarubezhneft and PetroVietnam owners, accord-ing to the draft protocol to the Russian-Vietnamese intergovernmental agreement, published on the Rus-sian government’s website.

In 1993, Russia and Vietnam signed an intergovern-mental agreement on Vietsovpetro’s activities. Za-rubezhneft and PetroVietnam have now agreed that Vietsovpetro will use 35 percent of its annual gas and




VIETNAM FACES DIFFICULTIES IN RUSSIA

Rusvietpetro, a joint venture between Zarubezhneft and Petrovietnam, is implementing the programme to develop four blocks of the Central Khoreyver Uplift (CKU) in Russia’s Nenets region. The blocks include 13 fields: • Block 1 of Central Khoreyversk Basin (CKB): o Severo-Khosedayuskoye field• Block 2 of CKB: o Visovoye and Verhne-kolvinskoye fields• Block 3 of CKB: o Zapadno-Khosedayuskoye, Sikhoreyskoye, Vostochno-Sikhoreyskoye, Severo-Sikhoreyskoye fields• Block 4 of CKB: o Severo-Oshkotynskoye, Syurkharatinskoye, Pyuseyskoye, Y u z h n o - S y u r h a r a t i n s k o y e , Urernyrdskoye and Vostochno-Yanemdeyskoye fields.Zarubezhneft won the tender for the licenses to conduct hydrocarbon exploration and production at the four CKU blocks in May 2008. In July of that year,

Zarubezhneft and PetroVietnam established the Rusvietpetro joint venture, in which the Russian and Vietnamese companies hold 51 percent and 49 percent, respectively. Under the 20-year license agreement, Rusvietpetro is to drill eight appraisal wells, 19 exploratory wells and 300 production wells. (See «Zarubezhneft Unveils Onshore and Offshore Plans», Russian Petroleum Investor, August’11).Meanwhile, the head of Zarubezhneft, Sergei Kudryashov, said that Zarubezhneft and PetroVietnam have faced geological problems at the CKU fields and decreased their maximum production forecast to 3 million tonnes per year, expected to be achieved next year, from the previously planned 4.7-5 million tonnes. “The project has turned to be very difficult with very complicated geological conditions. They are extremely difficult to develop due to the increased water content: literally, you barely manage to extract 5-6 percent of

the recoverable reserves, as water emerges,” Kudryashov said in an interview to Interfax news agency on 11 November.“Practice has shown that our case is similar to other difficult deposits in the region. We can reach a production level of 4 million tonnes, and even 5 million tonnes, today, but then very soon we will have water. Next year, we are going to produce 3 million tonnes and realise that in this case we are able to ensure stable production. Believe me, to ensure stable production of 3 million tonnes is also a very difficult task,” he added.According to Kudryashov, the companies are currently actively seeking new technologies capable of overcoming these problems. “Everything is geared to finding a solution to this geological problem. I must say, however, that major Russian and international companies have yet to find such a solution so far. If we find one, it will be a major breakthrough which can and should be

commercialized. We reorganized VNIIneft [research institute] to look for a solution; we are also working with other institutions and have prepared an innovative programme for the company,” Kudryashov said. He added that the companies are going to submit a request to the Ministry of Energy asking for export duty benefits for 10 CKU fields. Investment in CKU development could reach about 15-16 billion roubles per year in the next 5 years.Despite the geological problems, the CKU development project remains very promising, Kudryashov said. “This is a very dynamic project. Of the 13 CKU fields, we launched three fields, which produce an average daily of more than 8,000 tonnes of crude. In recent years, annual production increases here have been around 40 percent. CKU produced 1.5 million tonnes of crude in 2011, 2.09 million tonnes in 2012, and this year we plan to produce 2.8 million tonnes. From 2014, we expect

to reach annual production of more than 3 million tonnes,” Kudryashov said.LUKOIL faced similar geological problems in the Arctic South Khylchuyu field, developed by the company’s unit Naryanmarneftegaz (See «Oil Majors: Preliminary 2011 Results; 2012 Plans and Projections», Russian Petroleum Investor, November-December’11). In 2011, the oil company announced that South Khylchuyu production plummeted due to mistakes made by geologists. The field’s output fell to 3.3 million tonnes in 2011, less than half the 7 million tonnes per year produced in 2009 and 2010, due to “a number of unanticipated geological reasons”, the company said. Later, LUKOIL said that it planned to stabilize the field’s production at 1.5 million tonnes. In 2011, the company recognized an impairment loss of fixed oil production assets and other assets of Naryanmarneftegaz in the amount of $1.261 billion.

gas condensate revenues to finance operations. End-year undisbursed funds will be divided between the joint venture partners.

The protocol also establishes taxation conditions for the joint venture’s gas and gas condensate produc-tion. Gas condensate activity is subject to a royalty of 18 percent of annual production, an export duty of 10 percent of the annual condensate exports, a special tax of 10 percent on annual gas condensate deliveries to the domestic market and an additional fee applied to highly-profitable gas condensate production when the global oil price exceeds $75 per barrel.

The natural gas royalty is based on a progressive scale depending on gas production volumes: 2 percent of gas output under 5 million cubic meters per day, 5 percent of output from 5 to 10 million cubic meters per day, and 10 percent for production at or above 10 million cubic meters per day. Vietsov-petro will also pay an export duty of 10 percent on its exports, a special tax of 10 percent on its domestic deliveries and an environmental protection fee. In addition, Vietsovpetro will pay an income tax of 50 percent on profits from gas sales after the payment of all other taxes and fees.

Vietsovpetro is developing two offshore deposits, White Tiger and Dragon, at Block 09-1 in south-ern Vietnam. In the course of more than 32 years

of work, the company has built 13 fixed offshore platforms, two platforms and three pump stations. Peak production of 13.5 million tonnes per year was reached in 2002. In recent years, the field’s output has been declining by about 10 percent per year and is expected to amount to 5.5 million tonnes in 2013. Two new deposits, Polar Bear and White Rabbit, have been recently discovered and put into opera-tion at Block 09-1. In November, the company plans to start development of White Tiger’s lower Miocene and upper Oligocene reserves. It is expected that the new deposits can provide Vietsovpetro with a reserve increase roughly equal to the venture’s current pro-duction.

Vietsovpetro is also involved in the Nam Rong-Doi Moi (Southern Dragon-Sea Turtle) project, imple-mented jointly with Japanese companies. The part-ners have drilled 16 wells and confirmed the presence of oil-bearing reservoirs in the area. Total oil reserves of the field, launched in 2010, amount to about 35 million tonnes. Oil production is expected to reach 256,000 tonnes this year. Four new production wells planned for next year are expected to increase an-nual output to 368,000 tonnes.

The venture is also continuing seismic exploration at the smaller blocks, 04-1 and 09-3/12. After data interpretation and analysis are completed, the com-

PROJECTS





pany will decide on next steps. Total reserves of Block 04-1 are estimated at 500 million tonnes of oil equiv-alent, while Block 09-3/12 reserves are projected at 85 million tonnes. Block 16-2, in which Vietsovpetro holds a 15 percent share with the balance owned by PetroVietnam’s exploration arm PVEP and Japanese companies, drilled three exploration wells between 2009 and 2011. Drilling results indicated that further field development not economically feasible.

In addition, Vietsovpetro is currently implementing the first stage of exploration works at Block 12/11 and this year has signed a production sharing agreement (PSA) on Block 42, whose total gas reserves are es-timated at 57 billion cubic meters (bcm). In October, the company started 3D seismic exploration at the block. Under the PSA terms, the first three-year stage of exploration should include 3D seismic surveys covering 500 square kilometres and the drilling of one exploration well. Zarubezhneft and Petrovietnam have agreed to launch one more field, Block 04-3, in 2016.

Zarubezhneft and PetroVietnam also continue to work together within the Rusvietpetro project (See Inset 1 “Vietnam faces difficulties in Russia”). Cur-rently, the Tsentralno-Khoreyversy Uplift produces over 8,000 tonnes of oil per day. In 2012, the deposit produced 2.09 million tonnes of oil and is expected to increase output to 2.8 million tonnes in 2013. Rus-vietpetro expects to reach annual production of more than 3 million tonnes in 2014 and going forward.

ROSNEFT CAN CHALLENGE ZARUBEZHNEFT ON VIETNAM’S SHELFZarubezhneft is the longest active Russian company in Vietnam, but is now being challenged by Rosneft. Rosneft and PetroVietnam signed a memorandum of understanding on Rosneft’s possible acquisition of a share in the Block 15-1/05 PSA project on the Vietnamese continental shelf. In return, Rosneft will invite its Vietnamese partner into a joint project in the Pechora Sea in Russia’s Arctic. The parties agreed on the principal terms of cooperation in hydrocarbon exploration and production in the Pechora Sea.

In May, Rosneft offered PetroVietnam an opportunity for joint development of eight blocks on the Pechora Sea shelf (See “Russia Opens Offshore Blocks to Newcomers”, Russian Petroleum Investor, June’12). The blocks’ recoverable reserves are estimated at about 117 million tonnes of oil and 70 bcm of gas. Rosneft has also offered PetroVietnam participation in a number of upstream projects in East Siberia’s Yakutia, Irkutsk and Krasnoyarsk regions.

Vietnam has long expressed dissatisfaction with the fact that Vietnamese firms had no access to the Russian shelf despite opening its shelf to Russian companies (See “PetroVietnam May Gain Access to the Russian Shelf”, Russian Petroleum Investor, Au-gust’12). However, Zarubezhneft itself has no Russian shelf projects, which are largely distributed between state energy giants Rosneft and Gazprom. Zaru-bezhneft has sought licenses for two offshore areas

PROJECTS


UN SUBCOMMITTEE RECOGNIZES RUSSIA’S RIGHT TO SEA OF OKHOTSK RESOURCES

Russia may soon have an opportunity to invite partners, including those from the Asia-Pacific region, into exploration and production projects in new marine areas. A UN subcommittee has agreed with arguments presented by Russia and tentatively declared that 52,000 square kilometers of the Sea of Okhotsk, which borders Japan, is part of Russia’s continental shelf.Deputy Chairman of the State Duma Committee on Natural Resources, Environment and Ecology, Maxim Shingarkin, believes that Russia will soon be able to start development of mineral resources across the Sea of Okhotsk. Although Russia still has to submit a number of documents to get the decision confirmed Shingarkin is confident of success. “Russia can not only explore this shelf, but also perform mining operations across

the Sea of Okhotsk. We need to understand that the bottom of the Sea of Okhotsk is located in Russia’s exclusive economic zone, and these vast natural resources are our country’s possession,” he said.To the south, the Sea of Okhotsk borders the Japanese island of Hokkaido, while on all other sides the sea is surrounded by Russia. According to Russia’s Ministry of Natural Resources and Environment (MNRE), the considered area of the continental shelf is rich in hydrocarbons, metals and other minerals. Currently, the land claimed by Russia does not formally belong to any of the states and is considered generally accessible. This fact is widely used by foreign fishing vessels exploiting the area’s bio-resources. If Russia confirms the right to the shelf area, it will be able legally to limit

and regulate the production of bio-resources in the central part of the Sea of Okhotsk, MNRE said.In 2001, Russia already applied to the UN to recognise its right to exploit the underwater part of the Sea of Okhotsk continental shelf beyond the 200-mile economic zone. However, the lack of data provided by Russia and the opposition of Japan led to the rejection of its application, which was asked to submit new scientific studies and more detailed justification of its position. Russia conducted additional studies, which proved the identity of the soil samples taken from the bottom of the continental shelf with those taken beyond the shelf. Japan did not object to the new Russian application, as Russian experts had managed to convince Tokyo that it had no legal grounds for complaints. Russia submitted additional materials to the UN

last August.According to Russian Deputy Minister of Natural Resources and Environment Khramov, the Sea of Okhotsk application is only a small part of the Russian claim for the Arctic shelf. “The major part is our Arctic possessions: the Lomonosov Ridge, the Mendeleev Uplift and the Podvodnikov Hollow. The approximate time of our application submission is the next year, although the issue of timing will be the subject of a special study. After all, Russia is not alone there, other Arctic countries can also claim their pieces of the pie. They include Canada, Denmark, the U.S. and Norway,” Khramov said. If Russia’s application to validate the new boundaries of the continental shelf is granted, the Russia borders will expand by 1.2 million square kilometres. According to MNRE, the Arctic

shelf resources may amount up to 5 billion tonnes of oil equivalent. Russian scientists are trying to prove that the Lomonosov Ridge and the Mendeleev Uplift belong to the East Siberia edge.Experts believe that granting the claim on the Sea of Okhotsk could help Russia with its possible future application on the Lomonosov Ridge and Mendeleev Uplift. “The UN will be considering the issue of the Arctic shelf ownership and its length, and, given their decision on the Okhotsk Sea, it would be foolish not to use this opportunity,” said Dmitry Polikanov, the first deputy executive director of the Russian Geographical Society. Since 2001, when the UN rejected the first Russian Arctic shelf claim, Russian scientists have conducted numerous studies and collected detailed scientific data in the region.




in the Pechora and Caspian Seas – the Pechora and Tyuleny fields, respectively. However, the company’s prospects for gaining access to the fields weakened in August, when Rosneft also applied for the areas. It thus comes as no surprise that PetroVietnam has expressed a desire to cooperate with Rosneft, which can bring the Vietnamese company to the Russian shelf, as the Russian state energy favorite has previ-ously done for its other foreign partners.

In May, Vietnam transferred its offshore Block 05-3/11 to Rosneft, which agreed to invest $100 million in ex-ploration and drilling at the field within two years. The block is located close to Block 06.1, in which Rosneft received a 35-percent share after the state company’s acquisition of the former stake’s owner, TNK–BP.

GAZPROM NEFT WINS THE RACE FOR DUNG QUATRosneft and Gazprom Neft have been competing for the right to acquire a stake in Vietnam’s only oil refinery, Dung Quat, currently fully owned by Petrovietnam. The Vietnamese authorities finally decided to distribute the refinery’s assets between both competitors by giving Rosneft a new shelf block and allowing Gazprom Neft to buy 49 percent in the refinery operator, Binh Son Refining and Petrochemi-cal. The parties are currently in talks to determine the price of the stake.

Under the agreement signed by Gazprom Neft with PetroVietnam, the Russian company will invest in Binh Son Refining and Petrochemical and in the modern-ization of the plant. With modernization, the refinery’s installed capacity will increase from the present 6.5 million tonnes to 10-12 million tonnes per year and improve processing efficiency to allow production of fuels meeting the Euro-5 standard. Gazprom Neft will co-finance the modernization project in proportion to its share. According to Gazprom Neft General Director Alexander Dyukov, the company will determine the investment amount and the volume of crude supplies to Dung Quat within the next three to six months.

“The company’s long-term development strategy envisages a substantial increase of processing outside Russia. Access to Dung Quat refining facilities will allow Gazprom Neft to enter the Asian oil products market – one of the fastest growing and most promis-ing in the world,” Gazprom Neft said in a statement.

The Dung Quat refinery, launched in February 2009, receives about 85 percent of its crude from a field developed by Vietsovpetro, while the balance comes from the Middle East. PetroVietnam had earlier of-fered a stake in the refinery to TNK-BP and Zarubezh-neft, but both declined.

In addition to Dung Quat, located in the central part of the country, Vietnam plans to build other refineries in the north and in the south. Central Vietnam has weak demand for oil products, and fuel produced by Dung Quat is shipped to other domestic markets by marine transport.

Pending completion of Dung Quat’s modernization, the Vietnamese government has exempted plant operator Binh Son from payment of customs duties on oil product imports in an amount equal to the planned increase in refinery’s production capacity. The Vietnamese government also provided Binh Son with import quotas on oil and petrochemical products up to 100 percent of production at Dung Quat, so that the plant could meet its obligations under earlier signed agreements during planned and emergency shutdowns.

Gazprom Neft will have the preferential right to pur-chase oil and petrochemical products from Binh Son and/or PetroVietnam at market prices as well as the right to sell products in Vietnam. According to the agreement, Russian oil supplies to the Dung Quat refinery will amount to 3 million tonnes in 2015 and increase to 6 million tonnes in 2018 and subsequent years (See Chart 1 “Oil supplies from Russia to Viet-nam’s Dung Quat refinery”). Under the terms of the agreement, the Vietnamese side guarantees achieve-ment of the target margin rate of not less than 20 percent on the invested capital (including debt).

Under Russian legislation, oil supplies under inter-governmental agreements have a priority over other exports along the oil pipeline system operated by the state monopoly Transneft. Oil supplies to Vietnam are planned to move through the Eastern Siberia-Pacific Ocean (ESPO) pipeline. ESPO’s overtaxed capacity has already been a subject of fierce clashes between Transneft and Rosneft, which uses the pipe-line for its increasing crude supplies to China.

Russia needs to expand the recently built pipeline to its designed capacity by 2020, said Energy Minis-ter Alexander Novak. “ESPO’s total capacity was planned at 80 million tonnes to Skovorodino and 50 million tonnes to Kozmino. We currently are ship-ping 50 million tonnes to Skovorodino and 30 million tonnes to Kozmino. The question is whether the required resources provide justification for expanding capacity to designed levels. To date, we are loading the project completely. Taking into account the deci-sion on increasing crude supplies to China along the Skovorodino - Mohe spur to 30 million tonnes, and in view of production volumes planned in the eastern part of our country, then surely there is every reason to expand the pipeline to the designed levels. It is a necessity,” Novak said.

Transneft previously has said that the oil companies’

RUSSIAN CRUDE SUPPLIES TO VIETNAM’S DUNG QUAT REFINERY, mln

2015 3

2016 3,6

2017 4,8

2018 and no less subsequent years than 6

Source: The draft intergovernmental agreement between Russia and Vietnam

PROJECTS





applications for shipping crude along ESPO after 2018 exceed the pipeline’s capacity. ESPO’s planned capacity expansion to 80 million tonnes by 2020 falls short of the 88 million tonnes oil companies’ need by that time. Most of the volume is planned for Rosneft, which also relies on the pipeline for crude supplies to the Komsomolsk refinery and hopes to use it to supply its planned Vostochny petrochemical complex in the future.

NGV FUELS FOR THE VIETNAMESE MARKETGazprom also received a Vietnamese contract: the Russian gas giant and Petrovietnam agreed to establish a joint venture for the production of natural gas-based fuels for vehicles (NGV) in the East Asian country. Gazprom’s head Alexei Miller said that the project gives the gas company a chance to try a new direction of work in Vietnam. “Gazprom operates on Vietnam’s shelf, produces natural gas, and we have agreed with the Vietnamese state oil and gas com-pany PetroVietnam to create a joint venture”, Miller said. “Without any doubts, natural gas for vehicle fuels mean big savings for the [Vietnam’s] budget, and the most important thing for us is the entry into a very receptive Vietnamese market”, he added.

According to Miller, Gazprom plans to supply 500 million cubic meters of NGV fuels to Vietnam’s do-mestic market per year. “The company will immedi-ately start working in the entire Vietnamese market, although initially we had thought that we would begin in separate regions.”

In the new joint venture, PV Gazprom NGV, PetroViet-nam’s subsidiary PV Gas will have a 50 percent stake, while the Gazprom stake will be split among its subsid-iaries Gazprom Gazomotornoye Toplivo and Gazprom International, each holding a 25 percent stake.

The project will operate mainly in southern Vietnam. Natural gas produced in the Nam Con Son area as well as associated gas from the Cuu Long basin will be delivered to the Nam Con Son Terminal and Dinh Co gas processing plants near the town of Vung Tau for treatment and subsequent liquefaction. The liq-uefied natural gas (LNG) will then be transported by LNG carriers to Ho Chi Minh City. After regasification, the compressed natural gas will be supplied to filling stations across the country.

Another recently signed Russian-Vietnamese docu-ment is a memorandum of understanding signed by Gazprom Marketing & Trading and PetroVietnam Gas on cooperation in the LNG sphere. The agreement will help Gazprom to start LNG supplies to Vietnam.

SEOUL TALKSFrom Vietnam President Putin went to South Korea, where the two sides discussed a large number of joint projects, including those related to the construction of energy transportation infrastructure. The most notable agreements included a memorandum of understanding signed by the consortium of Russian companies, Rosneft, Gazprombank and Sovcomflot, and Daewoo Ship Building & Marine Engineering for cooperation in the establishment of a shipbuilding centre in Russia.

The parties also considered the possibility of building a gas pipeline from Russia to South Korea. Speak-ing about the potential project, Putin said that it would be a complex, but achievable task. “Russia is a reliable and very convenient supplier, especially for Korea, given the proximity of our two countries,” Putin said in an interview with South Korean broad-caster KBS. The parties also discussed Russian LNG supplies to South Korea.

The proposed pipeline could potentially run either under the sea or overland through the North Korean territory. “Of course, overland would be cheaper and more reliable, if you factor out the problems of a political nature. If it could be done, it perhaps would be the perfect option. But it is not our business to interfere in the relations between North Korea and South Korea. If the two Koreas can reach an agree-ment, then this option could be quickly implement-ed,” Putin said.

“It is also possible [to lay the pipeline] along the ocean bottom. However, according to preliminary estimates, which I can give right now, it is not an easy project. There are great depths there, and there is another component which needs to be borne in mind: the project will be profitable only if it is supported by a certain amount of guaranteed supplies, and with pricing principles, which can be understood and documented for the long term. In this case, of course, we will have to sign long-term contracts, meaning that any investment in this infrastructure will need to pay for itself,” Putin added.

An offshore gas pipeline from Vladivostok to South Korea could have the length of 650-900 kilome-tres and run at the sea depth of up to 3 kilometres. Gazprom earlier criticized the idea, arguing that the complicated form of the seabed in the area would make the project too difficult from the technical point of view. Currently, South Korea imports gas in LNG form exclusively.

PROJECTS


Gazprom plans exploration and seismic surveys at several blocks in the region: expanded Block 112 (where the September 2000 contract provides for ex ploration, production and sales of hydrocar-bons) and Blocks 129, 130, 131 and 132 (Gazprom and Petroviet nam signed the con-tract in October 2008). Gazprom and Petroviet-nam signed an agreement in April 2012 to al-low Gazprom to develop Blocks 05.2 and 05.3. Within these blocks, the com-panies discovered two gas conden-sate fields, Moc Tinh (Block 05.3) and Hai Thach (Blocks 05.2 and 05.3) and one oil field, Kim Cuong Tay (Block 05.2). Output from the Hai Thach and Moc Tinh deposits will be delivered to shore via the existing Nam Con Son pipeline.



ROSNEFT: NO END TO ACQUISITIONS IN SIGHT

TRANSACTIONS

By Victoria Nezhina

Hardly a month passes without news about Rosneft’s ongoing or planned mergers and acquisitions. After its mega-acquisition of TNK-BP, Rosneft acquired Itera, Taas-Yuryakh Neft-egazodobycha, essentially agreed to buy a stake in SeverEnergia from Italy’s Enel, is seeking approval to buy out the Russian government’s share in the Novorossiysk Commercial Sea Port, and is likely going to acquire LUKOIL’s stake in the National Oil Consortium, active in Venezuela. The company is also seeking consulting expertise to identify M&A opportuni-ties among the independent compa-nies in most of Russia’s oil and gas producing regions. Abroad, Rosneft intends to assess potential oil and gas opportunities in Latin America, Africa, and the Middle East where it is looking to buy assets and participate in new projects and upcoming tenders for mineral resources.

Rosneft’s active acquisitions program continues unabated. Besides East Siberia, Rosneft is look-ing into the resource base of the Timano-Pechora Basin, the Volga-Urals Basin, West Siberian provinces, the Far East, the North Caucasus, and the Caspian Sea region, and is undertaking a cost comparison for the exploration of new deposits, marketing opportunities for planned hydrocarbon production, and tendering costs for subcontracts to develop the deposits.

In East Siberia, Rosneft has just launched a RUB 8 million tender for consulting services to analyze the reserves base and investment prospects of independent oil and gas companies in the region with a view to making a future acquisition. The fo-cus of the tender is to assess the companies’ per-formance, the prospects of acquiring new acreage, and potentially productive geological structures in the region, including the Leno-Tunguska oil and gas reservoir. The consulting task also includes collecting and processing geological data, as well

as data on infrastructure development, changes in taxation, developing and revising a financial model follow-up revision, an analysis of 2011-2012 explo-ration and exploratory drilling, and an assessment of the change in investment climate between 2002 and 2012.

Rosneft has also announced a separate RUB 4.5 million tender for an expert report tentatively titled “Global oil and gas exploration analysis 2012.” The report will aid Rosneft in developing its strategy for selecting overseas deposits for exploration and production. The research will be done on four levels – global, regional, national, and local – and will identify the most attractive countries for oil exploration and production. The research will focus on Latin America (eight countries), Africa (17 coun-tries), and the Middle East (six countries), where at least one oil or gas discovery was made in 2012. The local level review will focus on 104 finds in Lat-in America, 62 discoveries in Africa, and 25 finds in the Middle East. The report must also determine the regions with primary exploration areas for 2013 and provide maps of upcoming tender rounds in the reviewed countries. Rosneft managers will use the report to make decisions on acquiring new as-sets and taking part in new projects.

Finally, Rosneft’s third tender, valued at RUB 4 million, calls for a report named “The geology, oil and gas potential, and the choice of priorities for the expansion of the company’s resource base in Central and South America.” The report will enable Rosneft to target the most promising onshore and offshore areas (oil and gas producing and potentially producing basins) in the two regions, rank them, and prepare recommendations for the choice of the most attractive areas in relation to the diversification of Rosneft’s investments.

TAAS-YURYAKH, TOGETHER WITH THE CHINESEIn October of this year, Rosneft closed a series of deals to acquire a further 64.67 percent stake in Taas-Yuryakh Neftegazodobycha for $2.053 billion (RUB 66 billion at the Central Bank’s official rate on the date of acquisition), raising its stake to 100 percent and acquiring most of the company’s debt. With such a significant financial commitment, one has to ask what the asset’s attraction for Rosneft is?

First of all, as Rosneft President Sechin put it,




TRANSACTIONS


“East Siberia is a priority region for the company. The Srednebotuobinskoye field is yet another new first-class field in Rosneft’s portfolio.” Taas-Yuryakh Neftegazodobycha owns the license for the Srednebotuobinskoye oil and gas condensate field, which is a field of federal importance in Yakutia, 160 kilometers north of the ESPO pipeline. Its C1 oil reserves are estimated at 90.9 million tons, C2 oil reserves at 38.9 million tons, and gas reserves at 155 billion cubic meters.

Srednebotuobinskoye has a potential to increase oil output and to produce gas. It is expected to yield one million tons of crude in 2014 and over 5 million tons a year from 2017. The crude from the field will go to Rosneft refineries in Russia’s Far East and to China under long-term contracts.

Before 2009, Urals Energy owned 35.33 percent of Taas-Yuryakh Neftegazodobycha, but it had to cede the asset to Sberbank to cover outstanding loans. In March 2012, Rosneft closed the deal to buy the Urals Energy stake from Sberbank for $444 million, an amount equal to the bank’s past costs associated with the project. In September 2013, the Federal Antimonopoly Service approved the acquisition of the other 64.67 percent of the Yakut company by RN-East Siberia, a Rosneft subsidiary. This remaining stake had been split between three offshore companies: Yakut Energy Limited (37.38 percent), Finfund Limited (16.82 percent), and Limenitis Holding Limited (10.48 percent), a sub-sidiary of international investment fund Ashmore. This deal closed in October.

Rosneft publicly acknowledged that Taas-Yuryakh was acquired in order to establish a joint venture with Chinese state company CNPC, but because the Chinese had little interest in holding a mi-nority stake in Rosneft’s own minority stake in Taas-Yuryakh (35.33 percent), Rosneft moved to purchase the other shares.

On 18 October, Rosneft and CNPC signed a memo-randum to expand cooperation in exploration and production projects in East Siberia. The companies will establish a joint venture to develop the Sred-nebotuobinskoye field, with Rosneft holding a 51 percent stake and CNPC owning 49 percent.

It is interesting to compare the $2.053 billion Ros-neft paid for 64.7 percent of Taas-Yuryakh with the $2.9 billion (RUB 95 billion) it paid in the summer to acquire a 49 percent stake in NGK Itera from Itera Holdings Limited. According to Rosneft, “the preliminary fair value of the total consideration transferred was RUB 191 billion on the date of the NGK Itera acquisition, which included a cash con-

sideration of RUB 95 billion and a preliminary fair value of NGK Itera’s non-controlling stake of RUB 96 billion.” But Itera already produces over 12 bcm of gas a year for Rosneft while Taas-Yuryakh will require significant investment to increase crude output to 5 million tons.

ROSNEFT BUYS INTO SEVERENERGIARosneft said in late September that NGK Itera, its hub for gas asset consolidation, agreed to buy a 40 percent stake in Arctic Russia B.V. from Enel for $1.8 billion, a move which indirectly gave Rosneft a 19.6 stake in SeverEnergia. Artic Russia B.V., a joint venture between Italian companies ENI (60 percent) and Enel (40 percent), owns a 49 stake in SeverEnergia, while Yamal Development, a joint venture between Gazprom Neft and NOVATEK, owns the balance of other shares. NOVATEK’s co-owner Gennady Timchenko had said Gazprom Neft and NOVATEK were discussing the acquisition of Enel’s stake in SeverEnergia, but Enel’s head Fulvio Conti said the talks with NOVATEK were unsuc-cessful.

ENI still owns a 60 percent stake in Arctic Russia B.V., which indirectly gives it 29.4 percent of Se-verEnergia. News reports on 10 October indicated that Gennady Timchenko discussed the acquisition of ENI’s stake in SeverEnergia with ENI head Paolo Scaroni. Timchenko said he hoped for construc-tive talks with Rosneft. “Perhaps, it would be more appropriate for us to talk to Rosneft before they announce any agreement with the Italians. But, unfortunately for us, Mr. Sechin is a very busy per-son with a tight schedule, perhaps, this is why he was unable to talk to us before signing. But I hope we will begin a constructive dialogue with Rosneft shortly and come to a win-win solution,” Timchen-ko told the daily Kommersant.

Enel invested about $500 million in SeverEner-gia five years ago, Timchenko said. Early in the negotiations, Enel asked $5 billion for its stake, or ten times its investment. “We had a long and meticulous discussion and arrived at the $1.8 bil-lion number. We had a feeling that we were close, that we almost had the deal. The investor would have received triple its investment. Any expert will tell you it’s a great investment, but here comes Rosneft out of nowhere and announces the deal,” Timchenko said, ruefully.

But both NOVATEK and Gazpromneft are sticking to their guns: in late October it was announced that they had again offered $4.9 billion to Enel and

ENEL INVESTED ABOUT $500 MILLION IN SEVERENER-GIA FIVE YEARS AGO. EARLY IN THE NEGOTIATIONS, ENEL ASKED $5 BILLION FOR ITS STAKE, OR TEN TIMES ITS INVESTMENT.




ENI for their stakes, Kommersant reported. Enel was offered $2 billion for its 19.6 percent stake and ENI was offered $2.9 billion for its 29.4 percent. Gazprom Neft and NOVATEK hope to outdo Ros-neft because they do not want it in their project, a source told Kommersant. However, a Rosneft of-ficial had said that the contract to buy Enel’s stake in SeverEnergia was legally binding. Two questions arise: will NOVATEK and Gazprom Neft succeed at least in buying ENI’s share? And is it going to be the same scenario as Taas-Yuryakh when Rosneft joined the project as a minority shareholder only to acquire not just the majority stake, but the entire company?

MINORITY PARTNERS: ROSNEFT’S NEW HEADACHEThe full acquisition of Taas-Yuryakh was deter-mined not only by the Chinese position, but also by the politics of Rosneft’s internal pressure as a minority partner (see “Major Players Pursue New Opportunities”, Russian Petroleum Investor, September’13). For example, after it acquired a 35 percent stake in Taas-Yuryakh, Rosneft struggled to learn details about company operations, as the other shareholders tried to block Rosneft access to data. In the end, given Rosneft’s successful legal challenges, they agreed to sell all of their shares to Rosneft.

The multiple deals that Rosneft is currently engaged in, of course, do not come close to the mega-deal to acquire TNK-BP. But the former minority partners of TNK-BP are still a source of problems for Rosneft, and the company is now seeking to buy out the minority stakes in RN-Hold-ing, formerly TNK-BP Holding.

For example, in late September, Rosneft’s board approved an offer to buy RN-Holding’s shares from minority stakeholders at RUB 67 per common share (1,918,701,184 ordinary nominal uncertified shares in play) and RUB 55 per preferred share (with 450,000,000 preferred nominal uncertified shares available). Based on this price offer, Rosneft may spend a total of about RUB 153.3 billion, of which RUB 128.5 billion would be for common shares and RUB 24.75 billion for preferred shares.

A report to the RN-Holding board from CitiGroup Global Markets Ltd indicated that the price offer was within the market range offered by buyers in comparable deals.

But in its 18 October filing with the Central Bank’s Financial Markets Authority, Rosneft registered an offer to acquire 15.3 percent of RN-Holding’s

equity capital. Because minority partners own 5.33 percent of the company’s equity capital and Rosneft affiliate Novy Investments owns 94.67 percent, Rosneft apparently is planning to buy up some of the shares from its own affiliate. Experts say that if at least one minority owner agrees to sell shares to Rosneft, and Novy Investments par-tially accepts Rosneft’s offer, Rosneft will then over 95 percent of the voting shares, enabling Rosneft squeeze-out RN

Why the concerns? Because some minority stake-holders do not agree to Rosneft’s terms. RN-Holding’s biggest minority shareholder, the UK’s Templeton Emerging Markets Group believes that Rosneft’s asking price is too low. In early October, a Franklin Templeton Investments official asked President Putin if he thought the buyout price for TNK-BP’s shares was fair. The average price of a TNK-BP common share was RUB 85 in 2012 before Rosneft announced the acquisition in October and then dropped to RUB 54 after the announcement, the official said. Rosneft’s acquisition of TNK-BP valued it at about RUB 100 per share, while De-loitte & Touche’s estimate was RUB 123 per share, Templeton said.

President Putin chimed in on 11 October, when he said that Rosneft’s buyout of shares from TNK-BP’s minorities must be transparent and straightfor-ward, and based on current market prices, not peak prices.

Templeton head Mark Mobius offered his own formula to price the shares, which is 38 percent higher than Rosneft’s offer, or RUB 90 per com-mon share and RUB 65 per preferred share. But Rosneft head Sechin told reporters in Beijing that the price was unlikely to change. “I may agree or disagree, but it doesn’t matter because there is a presidential order, market-based approaches to share buyouts, a board decision that offered the formula for the buyout. What does it matter whether I agree or disagree?” Sechin said.

News came out in late October that Rosneft sold 9.989 percent of its shares in RN-Holding to several non-affiliated third parties for RUB 97 billion in Q3 2013. Legal requirements prevent the company from naming the buyers, but the price was “attractive” for Rosneft, its Vice President for Economy and Finance Svyatoslav Slavinsky told a teleconference, adding that the buyers were unre-lated to each other.

The Investor Protection Association (IPA) said Rosneft was selling RN-Holding’s shares only to buy them back under a voluntary public offering. “Unfortunately, the only possible explanation is that this is an attempt to imitate the acceptance

TRANSACTIONS


Rosneft’s Sechin:

“I may agree or disagree, but it doesn’t matter because there is a presiden-tial order and market-based approaches to share buyouts…”




of 10 percent of the company’s shares as the result of a public offering necessary to obtain the right to further mandatory buyout of RN-Holding’s shares,” IPA said.

IPA, representing the interests of over 30 large institutional investors – Russian and global invest-ment funds with a total aggregate investment in Russia’s economy exceeding $28 billion – ex-pressed serious concern over the buyout of shares from RN-Holding’s minority shareholders. IPA as-serts that “a global-scale state company must not manipulate Russian legislation.” “We think that the company’s actions need to be stopped in order to prevent a significant deterioration of the coun-try’s investment climate,” IPA said. IPA is asking that Rosneft, the Central Bank, Russia’s govern-ment and President prevent a mandatory share buyout from RN-Holding’s minority shareholders.

BFA analysts also think Rosneft is selling the shares because it plans a mandatory buyout, as the sale price is comparable to that of a voluntary offering. They say Rosneft’s best bet is full con-solidation of former TNK-BP Holding to optimize the corporate structure, which implies a squeeze-out of minority partners. “We do not expect any generosity from Rosneft in the squeeze-out and think that it will be done at prices comparable to a voluntary offering, which we consider quite fair. We still recommend that the shareholders of former TNK-BP Holding accept Rosneft’s voluntary offer,” BFA analysts said.

ANOTHER POSSIBLE CONFLICT WITH TRANSNEFTRosneft and Transneft have had growing ten-sion over oil supplies to China, and now face a disagreement over the Novorossiysk Commercial Sea Port (NCSP). Transneft aims to increase its stake in the partially state-owned NCSP prior to its privatization, acquiring additional shares on the open market. One of Transneft’s goals is to put “psychological pressure” on its partner Summa Group, whose people hold the key CEO and Chair-man positions in the port but who have not been successful in its expansion. (see “October M&A Transactions: secrets come to light” in this issue). Another Transneft goal is to gain a controlling stake before the arrival of another investor who could acquire port shares on the open market and then be in a position to take part in the privatiza-tion of the government’s stake.

Transneft is clearly wary of Rosneft, which has been a nemesis on many projects and issues. Rosneft President Sechin wrote another letter to

President Vladimir Putin on 10 October propos-ing that the government privatize a 20 percent stake in NCSP by selling it to Rosneft. He said the company needed an onshore base for its offshore projects in the Black Sea, and that NCSP best met the technical requirements.

The news troubled the port’s owners. NCSP lacks spare capacity to accommodate the supply base for Rosneft’s offshore projects, a source close to the port’s management told the Prime news agen-cy, adding that the existing infrastructure at the port was quite enough to meet Rosneft’s demands. “Initially, we are probably talking about regular general cargo. Rosneft did not discuss this with us, and we did not look into it, but we will be happy to, so we could make them a new client,” the source told the agency.

Rosneft had proposed purchasing the govern-ment’s stake in NCSP back in 2012, but First Deputy Prime Minister Igor Shuvalov opposed the proposal at the time.

ROSNEFT AND LUKOIL’S INTERESTS IN VENEZUELA, AND SLAVNEFTRussia’s largest independent oil company LUKOIL informed its partners in the National Oil Consor-tium (NOC) partners Rosneft and Gazpromneft of its plans to sell its 20 percent stake in NOC, which is developing the huge Junin-6 field in Venezuela (see “October M&A Transactions: secrets come to light” in this issue), Lukoil head Vagit Alekperov said. .

Rosneft has not yet received a formal offer from LUKOIL for its stake in NOC and therefore cannot say whether it will buy the stake, Rosneft head Sechin told reporters in early October. “If we see (an offer), we will consider it,” he said. Asked whether Rosneft would be interested in another partner in the project, he said, “we are extremely interested in working there ourselves.”

If Rosneft accepts a LUKOIL offer, Gazprom Neft is unlikely to raise its stake in the project. The acquisition of Lukoil’s stake would give Rosneft 80 percent of NOC.

Rosneft and Gazprom Neft have another joint proj-ect – 50-50 ownership of Slavneft. Asked whether Rosneft had offered to buy Gazprom Neft’s stake in Slavneft, Gazprom Neft head Alexander Dyukov said no, noting that it was business as usual at Slavneft with no strategic differences between the shareholders.

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Transneft goal is to gain a control-ling stake before the arrival of another inves-tor who could acquire Novoros-siysk port shares on the open market and then be in a position to take part in the privatiza tion of the govern-ment’s stake.




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ROSNEFT’S 2013 OIL OUTPUT ADJUSTED FOR NEWLY CONSOLIDATED ASSETS, thousand tons

Jan Feb March April May June July August Sept YTD

Rosneft subsidiariesDagneftegaz 2.4 2.2 2.4 2.1 2.1 2.0 2.1 2.3 2.2 19.7Grozneftegaz 42.5 38.6 43.1 42.9 44.1 41.1 41.0 39.9 40.0 373.0RN Ingushneft 5.1 4.8 5.5 5.5 5.6 5.0 5.3 5.3 5.3 47.5Polar Lights 41.0 37.0 38.7 37.3 38.4 36.2 36.6 35.7 35.3 336.3RN-Severnaya Neft (Northern Oil)

283.3 253.7 275.8 260.0 259.0 249.2 254.9 255.5 244.5 2,335.9

Rosneft-Dagneft 10.9 10.6 11.9 12.3 13.2 12.7 12.9 12.7 12.4 109.6RN-Krasnodarneftegaz 76.8 69.2 76.4 72.7 75.6 74.2 77.4 77.7 75.6 675.7Rosneft-Malaninskaya gruppa

5.4 4.2 4.9 4.6 4.9 4.6 4.7 4.5 4.8 42.6

Rospan International - - - - - - 63.5 5.3 62.0 181.4RN-Purneftegaz 559.0 501.9 555.2 533.0 549.4 529.5 558.7 545.7 519.2 4,851.7RN-Sakhalinmorneftegaz 122.3 108.9 125.3 115.9 126.5 120.5 123.2 120.8 117.9 1,081.4RN-Stavropolneftegaz 70.6 64.0 71.3 68.4 70.6 67.2 68.0 67.0 67.8 614.8Samaraneftegaz 905.1 816.8 916.4 895.3 928.1 903.7 943.5 944.3 914.8 8,167.9Udmurtneft 547.8 495.8 549.0 531.4 548.5 531.7 548.7 548.5 530.9 4,832.4Vankorneft 1,753.1 1,611.2 1,799.2 1,744.1 1,831.1 1,772.5 1,834.1 1,840.7 1,781.3 15,967.4Vostsibneftegaz 15.1 16.4 15.0 3.0 0.0 0.0 0.0 0.0 0.0 49.5RN-Yuganskneftegaz 5,662.6 5,104.9 5,643.4 5,451.5 5,626.0 5,423.5 5,598.5 5,596.3 5,423.1 49,529.9Yupiter-A - - - - - - 1.6 1.6 1.5 4.7Buguruslanneft - - - - - - 143.2 143.1 134.6 420.9Ermakovskoye - - - - - - 65.6 65.6 63.3 194.5Kalchinskoye - - - - - - 43.9 43.4 41.5 128.8Nizhnevartovsk OGPC - - - - - - 211.2 207.7 0.0 418.9Orenburgneft - - - - - - 1,562.1 1,563.5 1,520.5 4,646.1Samotlorneftegaz - - - - - - 1,405.2 1,401.9 1,351.2 4,158.3Severo-Varyeganskoye - - - - - - 37.1 36.8 36.1 110.0TNK-Nizhnevartovsk - - - - - - 497.1 493.0 479.8 1,469.9TNK-Nyagan - - - - - - 541.8 542.9 527.5 1,612.3TNK-Uvat - - - - - - 744.2 748.4 730.7 2,223.3Tyumenneftegaz - - - - - - 12.1 12.0 11.6 35.7Vanyeganneft - - - - - - 115.5 118.8 113.5 347.9Varyeganneftegaz - - - - - - 143.4 144.9 142.4 430.7Verkhnechonskneftegaz - - - - - - 654.8 659.7 639.0 1,953.4Yugraneft Corp. - - - - - - 28.3 26.5 25.5 80.2Total for Rosneft 10,102.9 9,140.1 10,133.5 9,780.1 10,123.0 9,773.8 16,380.5 16,374.2 15,858.5 107,654.8Newly acquired companiesTaas-Yuryakh Neftegazodobycha

1.28 2.08 2.12 1.37 0.38 0.26 0.25 0.17 11.31 19.25

Note: All data current as of the date of the official report and not adjusted in the following months for further acquisition or divestiture of assets, as well as the consolidation of their numbers in the group’s reports.

Source: Central Dispatch Unit of Fuel Energy Complex (RF Ministry of Energy)




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ROSNEFT’S 2013 GAS OUTPUT ADJUSTED FOR NEWLY CONSOLIDATED ASSETS, million cubic meters

Jan Feb March April May June July August Sept YTDRosneft subsidiaries

Dagneftegaz 2.0 1.9 2.2 2.2 2.3 2.2 2.3 2.2 2.2 19.7

Grozneftegaz 20.4 18.8 17.8 14.4 12.2 11.7 10.1 9.8 11.2 127.3

Kynsko-Chaselsky Neftegas - - 9.6 0.0 0.0 6.6 6.4 0.0 0.0 0.0

RN Ingushneft 0.7 0.7 0.7 0.7 0.8 0.7 0.7 0.7 0.7 4.3

Polar Lights 2.7 2.5 2.8 2.6 2.6 2.5 2.4 2.3 2.3 22.7

RN-Severnaya Neft (Northern Oil)

23.2 21.2 23.0 21.9 21.8 20.9 21.1 21.2 20.3 194.4

Rosneft-Dagneft 23.5 22.2 24.4 23.9 24.4 23.4 26.0 25.8 24.8 218.4

Rospan International - - - - - - 321.2 273.5 313.6 913.0

RN-Krasnodarneftegaz 277.5 248.9 272.8 226.6 220.0 225.2 245.9 238.3 243.1 2,208.0

RN-Purneftegaz 343.3 311.9 361.7 328.0 351.8 355.5 350.1 352.7 350.5 3,105.8

RN-Sakhalinmorneftegaz 38.4 38.5 45.4 43.6 44.9 34.8 29.3 27.3 28.2 330.3

RN-Stavropolneftegaz 6.4 6.4 7.9 7.2 7.3 6.8 6.7 6.9 3.7 59.3

Samaraneftegaz 42.3 38.6 41.9 39.8 41.1 41.3 42.7 40.8 42.4 371.1

Udmurtneft 1.2 1.0 1.1 1.1 0.8 0.8 0.8 0.8 1.1 8.7

Vankorneft 49.3 44.3 46.5 40.8 40.1 33.8 34.1 35.0 40.6 364.3

Vostsibneftegaz 0.4 0.4 0.4 0.2 0.0 0.0 0.0 0.0 0.0 1.4

Yuganskneftegaz 310.6 289.3 319.9 311.7 296.0 203.0 316.1 330.1 331.5 2,715.2

Yupiter-A - - - - - - 49.0 1.6 0.0 0.1

Buguruslanneft - - - - - - 1.2 1.2 1.1 3.5

Ermakovskoye - - - - - - 3.3 2.9 3.5 9.6

Kalchinskoye - - - - - - 2.5 0.7 0.6 2.4

Nizhnevartovsk OGPC - - - - - - 19.9 16.0 19.5 55.3

Orenburgneft - - - - - - 242.2 262.3 202.0 706.5

Samotlorneftegaz - - - - - - 427.2 401.7 425.7 1,254.6

Severo-Varyeganskoye - - - - - - 32.8 32.7 31.1 96.6

TNK-Nizhnevartovsk - - - - - - 67.3 62.3 62.0 191.6

TNK-Nyagan - - - - - - 125.9 128.2 129.2 383.3

TNK-Uvat - - - - - - 6.3 6.2 6.3 18.5

Tyumenneftegaz - - - - - - 0.0 0.0 0.0 0.0

Vanyeganneft - - - - - - 94.3 79.3 88.0 261.6

Varyeganneftegaz - - - - - - 107.2 90.7 118.9 316.8

Verkhnechonskneftegaz - - - - - - 8.1 8.2 8.2 24.5

Yugraneft Corp. - - - - - - 3.2 2.8 2.7 8.6

Total for Rosneft 1,142.0 1,046.7 1,178.1 1,064.6 1,066.0 968.9 2,606.3 2,464.1 2,515.1 13,997.6

Newly acquired companies

Itera’s assets

Purgaz 1,347.2 1,209.3 1,341.6 1,214.5 1,106.9 1,129.5 1,057.7 1,165.2 1,188.5 10,760.4

49 percent – Itera’s share 660.1 592.5 657.4 595.1 542.4 553.5 518.3 570.9 582.4 5,272.6

Sibneftegaz 965.2 871.1 965.0 919.3 896.3 864.3 812.8 891.3 868.0 8,053.3

49 percent – Itera’s share 472.9 426.8 472.8 450.5 439.2 423.5 398.3 436.7 425.3 3,946.1

Total Itera 1,133.1 1,019.4 1,130.2 1,045.6 981.6 977.0 916.5 1,007.7 1,007.7 9,218.7

Taas-Yuryakh Neftegazodobycha

1.7 1.5 1.9 1.5 0.7 1.0 1.1 1.3 2.7 13.4

Total for newly acquired assets 1,134.8 1,020.9 1,132.1 1,047.1 982.3 978.0 917.6 1,009.0 1,010.4 9,232.1

Source: Central Dispatch Unit of Fuel Energy Complex (RF Ministry of Energy)

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RUSSNEFT MANEUVERING

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By Sergei Glazkov

Once one of Russia’s top ten oil com-panies, Russneft is apparently down-sizing via a series of murky moves. In October, the company that is owned by Mikhail Gutseriyev stopped report-ing production results for 11 of its 26 upstream assets, with their output instead appearing in the “Other pro-ducers” section of Russian Ministry of Energy’s statistical database. Gut-seriyev transferred two of Russneft’s upstream units to Neftisa, another company under his control, which ac-quired two other firms, Unified Oilfield Energy Systems (UOES) and Uralnefte-servis. Developing its business on bor-rowed money, Russneft depends heav-ily on loans from oil trader Glencore, which was owed about $2.3 billion by Russneft at the end of 2012. Gutseri-yev has offered to allow Glencore to obtain equity in Russneft in exchange for writing down the company’s debt. The recent reshuffle of Russneft assets may well be related to this scenario.

Russneft owner Mikhail Gutseriyev has apparently shifted assets among his company holdings, rais-ing questions about Russneft’s future. In one piece of the puzzle, Russia’s oil-to-telecoms conglomer-ate Sistema sold its 49 percent share of Russneft back to Gutseriyev in June of this year, opting not to exercise its option to buy shares in Russneft’s eight Urals group production assets (See “Russ-neft Returns to Its Founder”, Russian Petroleum Investor, July’13). In a previous Russian Petroleum Investor report on M & A transactions, it was indicated that this group of assets accounted for almost half of Russneft’s total output, producing around 6.3 million tonnes of hydrocarbons in 2012. Sistema could have increased the booked output of its oil subsidiary Bashneft by 25 percent above the 15.4 million tonnes produced in 2012 had it ex-ercised its option; in this case, Russneft’s produc-

tion would have fallen by almost half. A Sistema purchase would surely have pushed Russneft off of the list of Russian oil majors (See “September M&A Transactions: Mid-Sized Companies Set the Tone”, Russian Petroleum Investor, October’13).

However, on 26 September 2013, Sistema an-nounced that it had decided not to use the option, and the next day Sberbank, the other remaining shareholder in Russneft with a 2 percent stake, agreed to sell its shares in the company back to Gutseriyev, making him the sole owner. “Now, Mikhail Gutseriyev is the owner of 100 percent of Russneft. We made a good deal of it,” said Sber-bank head German Gref.

Then, in October, Russneft stopped reporting operational results of 11 of its 26 production assets to the Russian Ministry of Energy’s oil and gas sta-tistical department. Russneft’s October production figures did not include output from the following 11 affiliate companies: Belkamneft, Zapadno-Malo-balykskoye (ZMB), KNNK, Okunevskoye, Regional Oil Consortium, ReshNK, Ryabovskyoe, Udmurt-geologiya, Udmurt National Oil Company, Udmurt Oil Company and Uralskaya Neft. According to the October Energy Ministry statistics, Russneft had only 15 production assets, compared to the 26 reported in September. However, the October list of Russneft’s upstream units did include a new company, Sredne-Vasyuganskoye (see Chart 1 “Russneft oil production, September-October ‘13” and Chart 2 “Russneft natural gas production, September-October ‘13”). Hydrocarbon produc-tion of the 11 former Russneft’s subsidiaries now appears in the “Other subsoil users” section of the Energy Ministry’s data.

In September, when these 11 companies were still considered part of Russneft, their total production amounted to 413,800 tonnes, with Russneft’s total output amounting to 1.145 million tonnes. Market observers are left wondering as to why Russneft cut reported output by 36 percent and what has hap-pened to ownership of the 11 above cited enterprises.

FROM RUSSNEFT TO NEFTISA, A PARTIAL EXPLANATIONTwo of the Russnet affiliates, Belkamneft and Zapadno-Malobalykskoye, were transferred to Neftisa, also owned by Gutseriyev. Prior to the



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transfer, Gutseriyev increased his stakes in these firms to 100 percent.

Gutseriyev had earlier transferred Russneft’s share in Zapadno-Malobalykskoye (a 50/50 joint venture with Hungary’s MOL) to two Cypus-based com-panies, Pittalo Investment Limited (20 percent) and Egizis Investment Limited (30 percent), while maintaining control of his own shares. MOL then announced that it had sold its entire stake in the joint venture to two unidentified Russian compa-nies. According to the company database SPARK-Interfax, MOL-Western Siberia (MOL’s Russian subsidiary, through which the Hungarian company previously held its share in its joint venture with Russneft), is currently a part of Cyprus’ SHM Seven Investments Ltd.

Bashneft, which along with Russneft was a share-holder of Belkamneft with a stake of 38.5 percent, announced in October that it had sold its stake for $200 million to a group of private investors close to Gutseriyev.

According to SPARK-Interfax, Neftisa’s main shareholder is Cyprus’ Dolmer Enterprises Lim-ited, which owns 99 percent of the company. The remaining one percent belongs to Olga Prozorovs-kaya, Russneft’s Senior Vice President for Economy and Finance. According to market sources, the company is owned by Gutseriyev.

Established in April 2008, Neftisa remains little known in the market. According to the company’s website, its main activity is sales of crude oil and petroleum products, and not necessarily upstream oil production. In 2011, Neftisa began to trade oil products on the St. Petersburg International Mer-cantile Exchange. The company’s activities also in-clude a range of services: the supervision of oilfield works, geological consulting services, engineering, production, construction and maintenance of oil and gas fields, as well as providing information, analytical and advisory services related to business activities.

Neftisa is active in several major Russian oil production regions, including Tyumen and the Khanty-Mansiysk regions as well as the Volga and Komi regions. The company has also worked in Kazakhstan and Azerbaijan.

According to Neftisa’s financial report, 2012 rev-enues from wholesale crude sales almost doubled to RUB 46.7 billion (around $1.5 billion), up from RUB 23.4 billion a year earlier. Oil product sales increased to 4.3 million tonnes from 2.4 million tonnes. Revenues from providing “supervising and consulting services” grew to RUB 176.7 million, up from RUB 133.2 million.


NEFTISA GAINS MOMENTUMNeftisa has been steadily gaining momentum, making a series of moves on the M&A market, despite being unknown to industry observers just a short time ago. In October, the previously idle Neftisa acquired Unified Oilfield Energy Systems (UOES) and Uralnefteservis, both located in the Ural’s Perm region.

UOES owns oil and gas production licenses in the Perm region’s four districts:

UOES produces around 1.4 million tonnes of crude and about 90,000 tonnes of natural gas per month. In 2007, the company was put up for sale with a valuation of $75 million. Market participants assessed this year’s deal to be worth RUB 700 mil-lion, or approximately $20 million.

Uralnefteservis, which Neftisa also acquired in October, is a company performing the complete range of works in the industrial construction sec-tor, from design and manufacturing to construc-tion and installation. According to the company’s website, clients include LUKOIL, Rosneft, Tatneft, Bashneft and other Russian oil firms.

In addition to industrial construction, Uralnefteser-

• License (awarded 9 November 2005) for the Kapkan deposit in the Chernushensky district of the Perm region. Oil reserves registered in the state balance are 445,000 tonnes for C1 reserves and 532,000 tonnes for C2 reserves; associated gas reserves are 14 million cubic meters and 20 million cubic meters for the C1 and C2 reserves, re-spectively. The deposit covers an area of 23.5 square kilometers.

• License (awarded 9 November 2005) for the Kamensky field in the Oktyabrsky district of the Perm region. The field has C1 oil reserves of 988,000 tonnes and the C1 associated gas reserves of 50 million cubic meters. Its area is 57.55 square kilometers.

• License (awarded 8 August 2006) for the Vodorazdelny field in the Cherdynsky district of the Perm region. The field’s C1 geological oil reserves are estimated at 2.035 million tonnes, while recoverable C1 oil reserves are set at 509,000 tonnes. The field’s C1 associated gas reserves total 19 million cubic meters, and its area is 14.03 square kilometers.

• License (awarded 8 August 2006) for the Eskinsky deposit in the Solikamsk district of the Perm region. The field’s C1 and C2 geologi-cal oil reserves are estimated at 1.341 million tonnes and 535,000 tonnes, respectively, while C1 and C2 recoverable reserves are esti-mated at 356,000 tonnes and 107,000 tonnes, respectively. C1 gas reserves consist of 11 million cubic meters of cap gas, 8 million cubic meters of non-associated gas and 106 million cubic meters of associ-ated gas; C2 associated gas reserves are estimated at 12 million cu-bic meters; C1 and C2 gas condensate reserves are 4,000 tonnes and 2,000 tonnes, respectively. The license area is 58 square kilometers.




vis produces up to 10,000 tonnes of oil and up to 8 million cubic meters of gas per month. The compa-ny owns licenses for two oil fields, Altynovsky and Ozhginsky near the town of Kungur in the Perm region. The total independently audited reserves of the two fields are estimated at 5.4 million barrels of oil equivalent (boe) of proven reserves, 13.5 mil-lion boe of probable reserves and 15.7 million boe of possible reserves. The company’s ratio of oil and gas reserves is 44:56, with oil reserves totaling 14.9 million boe (3P) and gas reserves 19.7 million boe (3P).

In addition, Gutseriyev was reported to have bought another Perm-based company, Standard-Nafta, in May. Both Uralnefteservis and Standard-Nafta were previously a part of SibGazOil, owned by former Tomsk regional official Maxim Korobov. These two companies held oil production licenses for three fields in the region. Moreover, the Sredne-Vasyugansky company, which appeared in the list of Russneft’s production units in October, is also a former SibGazOil asset in the Tomsk region with oil reserves of 1.5 million tonnes.

In March, LUKOIL’s Ritek unit requested that the Federal Antimonopoly Service (FAS) authorize its takeover of both Uralnefteservis and Standard-Nafta. The FAS was not expected to hinder LU-KOIL’s moves in one of the company’s key produc-tion regions. However, the FAS first extended the petition consideration period and then granted the right to buy the companies – and UOES in addition to them – to Russneft instead of Ritek.

Experts do not rule out the possibility that Guts-eriyev’s aggressive entry into the Perm region may provoke resistance from LUKOIL. The Perm region is home to such key LUKOIL units as LUKOIL-Perm and LUKOIL-Perm Refinery, which is large contrib-utor to the regional government’s budget. More-over, Deputy Prime Minister Yuri Trutnev, former mayor of Perm and regional governor, moved to the national political arena as minister of natural resources and then to his current position with LU-KOIL’s support. LUKOIL has often had an influen-tial say on many issues related to the region’s fuel and energy sector development, such as whether or not SIBUR can build a gas power plant in the territory of its own gas processing plant or whether the region should host an oil and gas conference.

It is possible that other former Russneft’s produc-tion assets were also transferred to Neftisa, which, according to our information, already owns four production assets (Belkamneft, Zapadno-Malo-balykskoye, UOES and Uralnefteservis). It is also possible that by this transfer of assets, Gutseriyev is preparing Russneft for sale.

Gutseriyev might also have sold some of the 11 as-sets which have not been transferred to Neftisa.

GLENCORE ON THE HORIZONGlencore has a long and close relationship with Russneft, owning shares ranging from 39.8 percent to 49 percent in Russneft’s Varieganneft, Ulyanovskneft and Nafta-Ulyanovsk operations.

The oil trader recently announced that it was going to invest $650 million in oil production within the next two years and will focus on low-cost projects. Glencore General Director Ivan Glasenberg said in September that the company was interested in small oil projects in safe areas to conduct explora-tion which do not require substantial funds. “They are not $10-billion projects,” Glasenberg said adding that small oil projects do not require large initial investments and are far less susceptible to an unexpected increase in costs as often happens in the oil industry. “A well costs about $70 mil-lion, that’s all you risk in exploration. This is not a large-scale project at all,” Glasenberg said in his address to investors.

Glencore is likely to avoid costly projects also because of the oil trader’s lack of expertise in this area. “We are not going to drill in the North Sea, the Far East, the Gulf of Mexico or the United States. Projects like these are unlikely to bring us profit,” Alex Beard, head of Glencore’s oil divi-sion, told investors. The company’s management believes that Glencore’s competitive advantage lies in solving political and logistical difficulties in such challenging regions as West Africa, Central America and the former Soviet Union.

RUSSNEFT‘S DEBT HISTORY LEADS TO GLENCOREA decade ago, Russneft was actively buying up as-sets, for which the company spent RUB 19.1 billion ($630 million) in 2002-2004. Russneft borrowed in order to finance its acquisitions, initially from Gutseriyev’s BIN-Bank. In Russneft’s early days, BIN- Bank lent the company RUB 228 million (about $8 million). Later, the company moved to tap foreign sources for financing. For example, it borrowed $200 million in 2002 from BNP Paribas to purchase of the Aki Otyr and White Nights oil companies from Russia’s Mezhprombank.

Glencore has had a long association with Guts-eriyev and eventually became Russneft’s main creditor. For example, Slavneft, once headed by Gutseriyev, had exported part of its crude through

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Glencore’s Glasenberg: “A well costs about $70 mil lion, that’s all you risk in exploration. This is not a large-scale project at all”




Glencore. In 2001, the trading company helped Russneft obtain a $160-million loan from Europe-an banks. Glencore used to export all of the Russ-neft’s crude production and is still the company’s largest trader. In addition, Glencore has helped finance the majority of Russneft’s purchases. In December 2003 and February 2004, Russneft received two loans totaling $295 million from Glencore’s Cyprus-based subsidiary Interseal Ltd. Russneft used the money to purchase more than 60 percent in Belkamneft and two small upstream companies in the Komi and Novosibirsk regions for $456 million. After the purchase, the head of Glen-core’s Moscow office, Vladimir Shcherbak, joined Belkamneft’s board of directors. By 30 June 2005, Russneft’s debt to Interseal Ltd had increased to RUB 23.8 billion ($835 million), or roughly 40 percent of its total outstanding debt of RUB 57.4 billion ($2.014 billion).

Such substantial indebtedness allowed Glencore not only to take Russneft’s shares in pledge, but also to become a shareholder in a number of the oil company’s subsidiaries, such as Varieganneft, Ulyanovskneft and Nafta-Ulyanovsk.

According to Russneft’s 2002-2003 financial report, all of the assets purchased with Glen-core’s money, as well as 49 percent in the parent company itself, were pledged as collateral to the oil trader. In addition, the report said that Russneft and Glencore International AG were concluding an agreement which would have Glencore handling the export of all the oil produced by the acquired companies from 1 January 2004 for 10 years. Subsequent events have confirmed that Glencore

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acquired the right to export these companies’ oil from 2004 to 2014.

Glencore’s actual ownership role remains murky. According to several sources, Glencore received the right to acquire up to 49 percent of Russneft’s shares in all its subsidiaries in 2002 when the oil company was first established. Glencore’s web-site later claimed that Gutseriyev was the sole owner of Russneft, contradicting Russneft’s own 2004 report asserting that Gutseriyev did not own shares in the company. Experts have believed that Gutseriyev and Glencore owned Russneft on a parity basis, but both parties denied this, saying that they were only strategic partners. Gutseriyev has insisted that the conditions of his cooperation with Glencore do not allow the trader to eventually receive a share in Russneft’s assets.

At the end of 2008, Russneft’s debt totalled $3 billion, according to company reporting. The firm’s major creditors included Glencore’s Cypriot In-terseal Ltd (loans in 2005 of $1.3 billion maturing 31 December 2010) and Sberbank (including loans of $1 billion at 11 percent and RUB 14.7 billion at 8.5 percent in 2005-2006 loans, maturing in De-cember 2011. In total, Glencore lent $2.3 billion for Russneft’s acquisitions. According to the Russneft report, a part of the debt had been repaid and part was to have been repaid in 2008.

At the end of 2012, Russneft had outstanding debts, including accrued interest and fees payable, totaling $4.8 billion and EUR 35.7 billion. The company’s debt to Interseal was RUB 62.3 billion (about $2 billion), with interest amounting to RUB 8.8 billion ($289 million).

REUTERS/Arnd Wiegmann




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RUSSNEFT OIL PRODUCTION, SEPTEMBER-OCTOBER 2013September January-September October January-October

Aganneftegazgeologiya 99.6 673.2 114.8 788.0

AKI-OTYR 145.1 1,186.7 150.3 1337.0

Archneftegeologiya 0.0 0.0 0.0 0.0

Belkamneft 180.6 1,661.1 0.0 1661.1

Belye Nochi (White Nights) 130.9 1,350.1 127.5 1477.5

Chernogorskoye 10.0 91.6 10.3 101.9

Duklinskoye 0.0 0.0 0.0 0.0

Fedyushkinskoye 0.0 0.0 0.0 0.0

Goloil 11.9 115.8 12.1 127.9

KNNK 0.4 3.7 0.0 3.7

Grushovoye 0.0 0.0 0.0 0.0

Mokhtikneft 26.5 258.3 26.1 284.4

Nafta-Ulyanovsk 0.0 0.0 0.0 0.0

Nefterazvedka 0.4 3.9 0.5 4.4

Novo-Aganskoye 6.3 53.5 6.1 59.6

Okunevskoye 2.7 10.6 0.0 10.6

Penzaneft NGDU 0.0 0.0 0.0 0.0

Poselkovoye 0.0 0.0 0.0 0.0

Regionalnyi neftyanoi konsortsyum 94.1 896.9 0.0 896.9

RNK 1.9 17.8 0.0 17.8

Saratov-Bureniye 3.0 25.7 3.1 28.8

Saratovneftegaz 65.0 626.3 65.8 692.1

Sobolinoye 0.0 0.0 0.0 0.0

Stolbovoye 0.0 0.0 0.0 0.0

Sredne-Vasyuganskoye 1.1 1.1

Tomskaya neft 75.9 762.2 78.8 840.9

Udmurt National Oil Company 9.0 82.9 0.0 82.9

Udmurt Oil Company 46.4 286.7 0.0 286.7

Udmurtgeologiya 10.3 93.1 0.0 93.1

Ulyanovskneft 68.3 621.5 71.3 692.8

Uralskaya Neft (Ural Oil) 2.5 23.2 0.0 23.2

UTEK-Ryabovskoye 13.8 154.0 0.0 154.0

Valyuninskoye 1.7 16.2 1.8 18.0

Varyeganneft 86.4 814.5 88.7 903.2

Zapadno-Malobalykskoye 52.1 485.4 0.0 485.4

Total for RussNeft 1,144.8 10,314.9 758.2 11,072.9

Companies which are not included in Russneft’s production statistics from October 2013

413.8 3,715.4 0.0 3,715.4

Share of companies not included in Russneft’s production from 2013, %

36.1% 36.0% 0.0% 33.6%

Companies which had been sold by the beginning of 2013


Companies which are included in Russneft’s production statistics from October 2013

Other companies

Source: Central Dispatching Unit of the Fuel and Energy Complex




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RUSSNEFT NATURAL GAS PRODUCTION, IN SEPTEMBER-OCTOBER 2013September January-September October January-October

Aganneftegazgeologiya 10.2 18.9 12.2 21.7

AKI-OTYR 9.1 60.7 9.5 69.1

Archneftegeologiya 0 0 0 0

Belkamneft 3.5 28.2 0.0 27.6

Belye Nochi (White Nights) 61.2 314.1 67.6 354.5

Chernogorskoye 0.7 6.2 0.7 6.9

Duklinskoye 0 0 0 0

Fedyushkinskoye 0 0 0 0

Goloil 0.9 6.1 0.8 6.8

Grushovoye 0 0 0 0

Mokhtikneft 1.4 12.3 1.4 13.8

KKNK 0 0 0 0

Nafta-Ulyanovsk 0 0 0 0

Nefterazvedka 0 0 0 0

Novo-Aganskoye 0.8 5.9 1.1 6.8

Okunevskoye 0 0 0 0

Penzaneft NGDU 0 0 0 0

Poselkovoye 0 0 0 0

Regionalnyi neftyanoi konsortsyum 1.7 11.2 0.0 10.8

RNK 0 0.3 0.0 0.3

Saratov-Bureniye 2.4 22.4 3.5 25.7

Saratovneftegaz 31.9 296.6 35.1 329.1

Sobolinoye 0 0 0 0

Stolbovoye 0 0 0 0

Tomskaya neft 7.4 22.5 7.6 25.0

Udmurt National Oil Company 0.1 0.7 0.0 0.7

Udmurt Oil Company 0.4 1.3 0.0 1.0

Udmurtgeologiya 0.1 0.5 0.0 0.5

Ulyanovskneft 0.6 4.8 0.6 5.3

Uralskaya Neft (Ural Oil) 0.9 1.2 0.0 0.3

UTEK-Ryabovskoye 0.3 2 0.0 2.0

Valyuninskoye 0.1 0.1 0.1 0.1

Varyeganneft 44.8 410.7 46.9 457.6

Zapadno-Malobalykskoye 1.7 15.7 0.0 15.7

Total for RussNeft 180.3 1,242.4 187.1 1,381.3


8.7 61.1 0 58.9

Share of companies not included in Russneft’s production from 2013, %

4.8% 4.9% 0.0% 4.3%

Companies which had been sold by the beginning of 2013


Source: Central Dispatching Unit of the Fuel and Energy Complex



OCTOBER’S M & A TRANSACTIONS: SECRETS COME TO LIGHT

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By Victoria Nezhina

October 2013 featured a number of transactions involving secret par-ties, including the sale of a 10 percent stake in Russia’s Novorossiysk Com-mercial Sea Port, a major outlet for oil and grain exports on the Black Sea. State-owned oil pipeline monopoly Transneft emerged from the shadows as the secret buyer after a drawn out struggle for control over the port. Ad-ditionally, some owners of the mid-sized oil company Urals Energy, trying to protect themselves from attempts by Alltech Group to change the com-pany’s board and gain control over it, announced an alleged offer from ‘certain investors’ to buy the firm at a 60 percent premium over the market price. Another mid-sized oil company, the UK-registered Exillon Energy, considered by some analysts to be the last remaining attractive asset in Rus-sia, expects a takeover before the end of this year, although did not disclose the name of the buyer. Outside of Rus-sia, multiple Russian companies have received offers to buy into some hydro-carbon assets in Ecuador and Angola and were prequalified to participate in the tender for offshore blocks in Leba-non. Finally, Bashneft won the tender for an oil block in Myanmar.

On 20 September 2013 it was reported that Uralsib Capital, a unit of Russia’s Uralsib invest-ment company, purchased a 5.03 percent stake in the Novorossiysk Commercial Sea Port (NCSP) for $117 million in the interests of an unnamed client. On 2 October, head of Transneft Nikolai Tokarev clarified that Uralsib Capital had actually

bought a total of 9 percent of the port on behalf of an anonymous client. It was only on 17 October that Transneft officially confirmed that Uralsib has bought a 10 percent stake in NCSP on behalf of the oil pipeline monopoly.

A source familiar with the situation said that Transneft paid a total of $300 million for the stake. This is $100 million higher than the value of the stake quoted by the London Stock Exchange (LSE) where the Novorossiysk port’s GDRs are traded. The deal has yet to be finalized. Thus, the stake was sold at a significant premium, which is understandable: the Novorossiysk port is Russia’s largest and Europe’s third-largest port in terms of turnover. Prior to the sale, NCSP’s shareholders included Ziyavudin Magomedov’s Summa Group and state-owned Transneft. The two groups split a combined 50.1 percent ownership stake in the port through their joint venture, Novoport Holding Ltd. The 20 percent state-owned stake in the port was held by the Federal Agency for State Property Management, while Russian Railways owned 5.3 percent. The remaining 24.6 percent were free floating shares.

Transneft had not informed its NCSP partners about its intention to purchase the stake. The head of the Federal Property Agency Olga Dergunova said that she learned about Transneft’s involve-ment in the Uralsib deal by reading the newspa-per. A NCSP spokesman said that the company has never received an official announcement of the purchase. Even the central government was unaware of Transneft’s plans to buy the 10 percent stake, according to First Deputy Prime Minister Igor Shuvalov: “First, no one has confirmed it to us, and second, the deal was never coordinated with the government,” Shuvalov said. Transneft argued that the deal was too small to require special approvals from the government. “From a legal point of view, it is neither a major deal nor a related party transaction, and therefore does not require any directive or approval from the authori-ties,” said Igor Demin, an adviser to Transneft’s president.

At the beginning of the year, the major sharehold-ers of NCSP were in conflict over the financing of the port’s Sheskharis oil terminal. Transneft accused the Summa appointed NCSP leadership


RUSSIAN PETROLEUM INVESTOR VOLUME XIX, ISSUE 11-12, NOVEMBER-DECEMBER 2013RUSSIAN PETROLEUM INVESTOR VOLUME XXI, ISSUE 12, MARCH 2013


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of mismanagement and insisted on changing the port’s general director and chairman. With this in mind, the acquisition of the 10 percent stake may be regarded as Transneft’s attempt to strengthen its position in the enterprise. Prior to the sale, Transneft and Summa had no shareholder agree-ment in place to regulate their relationship, and the parties were supposed to express a consensus opinion during NCSP board voting. “Transneft’s acquisition of the 10 percent stake in NCSP will only strengthen the alliance [with Summa]. Now, together with Summa we have a combined stake of more than 60 percent in the port,” Demin said.

Andrei Rozhkov, analyst at the Metropol invest-ment company, believes that Transneft either in-tends to accumulate a controlling stake in the port or wants to put “psychological pressure” on its partner, Summa. According to Rozhkov, Transneft is likely to continue buying up shares in NCSP from the market even if it may be quite costly. Another option would be to buy output Summa’s stake in Novoport Holding. Nevertheless, a spokesperson for Summa has said that the group continues to consider the port’s share a strategic investment and is not going to sell its stake. The third and most likely option for Transneft to expand its NSCP share is to take over the state-owned share, which Russia has been planning to privatize for a few years.

The government has earlier said that the privatiza-tion of the NSCP’s 20 percent share owned by the Agency for State Property Management may take place before the end of 2013. However, according to the daily newspaper Vedomosti, the authorities have not ruled out a possible delay of the privati-zation to 2014. The newspaper quoted its source as saying that the government has yet to decide on the form of the sale. Dergunova told reporters that the agency has not changed its plans to sell the stake this year. She added that the best time to free float the shares on the stock market may have been missed, but that there are still no restric-tions for strategic investors. Irina Stupachenko, analyst at Otkritie Capital, noted that the further delay of the privatization might lead to a sharp decline of investors’ interest in the NSCP shares and a negative market reaction to the port’s weak performance.

Under current Russian legislation, companies with at least 25 percent state ownership are not al-lowed to participate as buyers in official privatiza-tion procedures. However, there are some mecha-nisms to evade the ban. Rozhkov of Metropolis suggested that Transneft might take part in the privatization through an alliance with a private investor. According to media reports, potential

contenders include Neftegazindustria, owned by Vladimir Kogan; the Delo group, owned by Ser-gei Shishkarev; UAE’s Invest AD fund; the trader Noble Group; Macquarie Renaissance Infrastruc-ture Fund; the Philippine International Container Terminal Services; Ukraine’s TIS, United Capital Partners; and the Russian Private Equity Fund.

MYSTERIOUS BIDDER FOR URALS ENERGYRussian mid-sized oil company Urals Energy has been approached with a takeover offer valu-ing the firm two-thirds higher than its market price, reported the Financial Times. The news-paper quoted chairman of Urals Energy Andrew Shrager as informing the shareholders that the company has received an offer to buy 100 per-cent of the firm at 12.25 pence (GBX) per share. This price was 63 percent higher than the Urals Energy share price of 7.5 pence at the close of trading on the London Stock Exchange (LSE) on 11 October 2013. The news sent the Urals Energy stock skyrocketing by 50 percent on LSE, but later the rise subsided to 20 percent.

In his letter to shareholders, Shrager did not disclose the name of the potential buyer, saying only that it was “a highly credible purchaser with previous Russian operational oil experience.” Analysts believe that the generous proposal from an unknown investor could be a power play in the conflict between Urals Energy’s founders and Group Alltech, which is trying to change the board of directors and gain control of the oil firm. For several years Alltech has been try-ing to sell the Prizalivny field to Urals Energy. Prizalivny is located 200 kilometers from Urals Energy’s Okruzhnoi deposit on Sakhalin Island. According to Shrager, Alltech is seeking to gain control over Urals Energy without buying all its shares, but by exchanging the Prizalivny field license for the company’s additional share issue.

According to information published on the web-site of Urals Energy, the company will hold an extraordinary shareholders meeting on 27 Janu-ary 2014. The meeting was initiated by Alpcot Capital Management and Fire East Corporation, which jointly own 30.6 percent of Urals Energy shares. The two parties are demanding the resignation of six of the seven board members, including the company’s co-owners and founders Leonid Dyachenko (a former son-in-law of the first president of the Russian Federation Boris Yeltsin), as well as Alexei Ogarev and Alexei Maximov, who jointly own about 5 percent in the

Under current Russian legislation, companies with at least 25% state ownership are not al lowed to participate as buyers in official privatiza tion procedures. However, there are some mecha nisms to evade the ban.




company. According to Kommersant, the board of directors almost unanimously recommended the shareholders to oppose the restructuring. The only director to abstain from voting was the Australian Sprint Energy’s Torbjörn Ranta, against whom the above-mentioned funds had no objections. Alpcot and Fire East have never expressed their interest in buying the shares from all the company’s share-holders, Shrager said in his letter.

On 25 September, Fire East and Alpcot suggested that two former top managers of TNK–BP be elected to the new board of Urals Energy: former Deputy CEO Maxim Barsky (who is currently CEO of Matra Petroleum and Pechora LNG) and former Vice President for Sales and Logistics Jonathan Kollek (current president of the Russian unit of the trading firm Trafigura). Barsky has agreed to take on the role of chairman of the board.

The current leadership of Urals Energy believes that at least Fire East is acting in the interests of Dmitry Bosov’s Alltech, the owner of Pechora LNG. According to Shrager, the sole owner of Fire East Corporation is Oleg Makhno, who, according to Russia’s company database SPARK, used to man-age the Saneko and Arkhangelovskoye companies when the firms were under the control of Alltech. Later, Matra Petroleum acquired Arkhangelovs-koye, which only has one asset, the Sokolovsky field in the Orenburg region. In May 2012, Barsky acquired almost 30 percent of Matra Petroleum and joined its board of directors. In June, Matra Petroleum announced the sale of its sole asset, Arkhangelovskoye, for $25 million with a further payment of $10 million based on the drilling re-sults within nine months. The company planned to use the proceeds from the sale to purchase more profitable assets. On 31 October, it was announced that Matra Petroleum’s subsidiary, Matra Petro-leum USA, had signed an agreement to acquire a North Texas oil and gas block for $28.2 million.

Barsky has told Kommersant that the proposal to change the Urals Energy board of directors is sup-ported by around 43 percent of its shareholders, and the “signatures keep coming”. He confirmed that there are no plans to fully acquire Urals Ener-gy, and that the company is planned to merge with the Russian oil assets of Alltech. He was skeptical about the announced offer to buy Urals Energy at a significant premium to the market price.

MASTER OF MERGERS AND ACQUISITIONSMany companies that Barsky worked for in the past underwent underwent mergers, acquisi-tions or other assets restructurings soon after his

arrival. In May 2009, the then 36-year-old Barsky became an independent director of BP’s Rus-sian venture TNK-BP, even though he had little oil industry experience at the time. His dizzying career rise was a departure from common industry practice of skilled, experienced oilmen leading major oil companies. Just a couple of weeks after he joined TNK –BP, Barsky was named the com-pany’s Executive Vice President for Strategy and Business Development, and in November 2009 TNK-BP’s shareholders voted to appoint him as the company’s Chief Executive Officer starting in Janu-ary 2011. In June 2010, upon completing a several month-long BP training course, Barsky took the position of deputy CEO at TNK-BP, which had been created especially for him. In the end, this was as high as Barsky would soar, and he never did be-come CEO of TNK-BP. In the early autumn of 2011, he warned the owners of TNK-BP that he would leave the company if his promotion did not take place by the end of the year, and in fact he did quit in the first of November 2011.

A graduate of the University of California at Berke-ley, Barsky became interested in capital markets and investment during his time in the United States. After just one year at Berkeley, Barsky es-tablished the brokerage company Sinex Securities, becoming the first Russian to receive a license to start a brokerage firm in the United States. Sinex Securities was a subsidiary of Russia’s Sinex Bro-ker, established in Moscow in 1994. Sinex Securi-ties, which joined the U.S. National Association of Securities Dealers in 1997, helped foreign investors purchase Russian Eurobonds and ADRs, while also helping Russians to invest abroad by acquiring private shares in technology companies in Silicon Valley. According to Barsky, he left the brokerage business and returned to Russia in the spring of 1997. In October 1999, it was reported that the FBI launched an investigation into the activities of Sinex Securities in light of the alleged Russian money laundering through the Bank of New York in 1996-1999. As the result of the investigation, by the autumn of 1999 the brokerage had not had a single client for two years, although it continued to hire employees.

According to Barsky, he joined the Moscow-based Troika Dialog investment company as a deriva-tives trader in 1998 and soon after that moved to the company’s investment banking division. By May 2000, Barsky had a spectacular career rise at Troika Dialog, having become Vice President of its investment banking department, but left the com-pany in August 2000 to pursue new opportuni-ties in the IT business. After Troika Dialog refused to grant a $10 million loan for regional business

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development to independent internet provider Cityline, Barsky secured the required sum by buy-ing a share in the firm for himself and taking the post of Director for Corporate Development. He left the post in May 2001 and in early April 2001 it was reported that he was the man behind Golden Telecom’s acquisition of Cityline for $29 million (or $27 million, according to some sources).

From May 2001 to March 2004, Barsky’s career path was hard to follow. He held several positions and served as a partner at several companies si-multaneously. From 2001-2003, he was the man-aging director of the Salford Continental invest-ment fund and also a senior investment director of Finartis from March to October 2003. In addition, served as a partner at BMG Finance since 1997 and became a partner of Biotek Limited in 2002. In 2004, Barsky was Head of Corporate Finance of Gazpromenergo, a wholly-owned subsidiary of Gazprom.

In March 2004, Barsky, as a representative of Alltech Investment, was elected to the board of directors of Sweden’s Vostok Oil, of which Alltech was the largest shareholder with 23.98 percent. Vostok Oil’s only asset was an 80 percent stake in Vostochny Transnational Company (VTK), which owned licenses for oilfields in Russia’s Tomsk region. After Vostok Oil changed its name to West Siberian Resources (WSR) in June 2004, Barsky pushed for the dismissal of two of the five com-pany board members, including chairman Frank Hayes, who opposed the proposed aggressive development strategy and eventually left the com-pany. In July 2004, Barsky was elected managing director at an extraordinary shareholders’ meeting of WSR. In addition, Alltech Investment dismissed three more of the five board members, supported by the funds which jointly held 9.32 percent in WSR. Around that time, it was reported that WSR had become the owner of 100 percent in VTC. In 2005, WSR acquired Pechoraneft and Barsky joined the WSR board.

In 2007, Spanish oil company Repsol bought 10 percent in WSR for $90 million. In April 2008, WSR merged with Alliance Oil, which then became a wholly owned subsidiary of WSR. The sharehold-ers of Alliance and WSR received 60 percent and 40 percent, respectively, in the consolidated verti-cally integrated oil company, which changed its name to Alliance Oil Company in June 2009. As a consequence of the merger, the share of Alltech in the combined company was diluted to 7.2 percent, while Repsol’s share shrank to 4 percent. Barsky joined the board of directors of Alliance in April 2008, when he also was the CEO of the WSR In-vest management company, a subsidiary of WSR.

In October 2008, Barsky resigned as managing director of WSR, but remained a member of the company’s board of directors. During his time in WSR, the company’s capitalization rose from $60 million to $3 billion. According to some sources, Barsky was named head of Alltech’s Russian af-filiate in 2009, while other sources suggest that he has been the director of the unit’s investment department since 2008.

ALLIANCE OIL TO BE DELISTEDIn late October, Alliance Group announced that it plans to fully consolidate Alliance Oil within com-pany subsidiary Alford Financial and to delist all of Alliance Oil’s shares. Currently, Alliance Group owns 45 percent of the common shares of Alliance Oil, as well as 7 percent of its preferred stock in the form of Swedish Depository Receipts (SDRs). The shareholders will be offered 60 kronas ($10.15) per common share and 313 kronas (about $53) per pre-ferred share, declared Alliance Group. The offer of common shares provides for a 4 percent premium over the market price at the close of trading on 30 October and a 25 percent premium over the aver-age share price over the last six months.

The Stockholm Stock Exchange has suspended all trading in shares of Alliance Oil. “Alliance Group believes that the transformation of the company from a public firm into a private entity will ensure a strategic approach to operational challenges and opportunities, as well as earnings growth and the simplification of the corporate governance struc-ture,” Alliance Group said. The company believes that the move will help it to minimize costs and increase the efficiency of its operations.

After the share buyback and delisting are com-pleted, Alliance Oil will receive the status of an in-dependent oil company within Alliance Group. The group’s independent directors have recommended the shareholders to retain Bank of America Merrill Lynch and Carnegie Investment Bank as transac-tion advisors. Alliance Group has also said that the share buyback is not intended for the subsequent sale of all or part of the oil company to a third party.

It should be noted that in late July media outlets reported on the possible sale of Alliance Group’s oil assets to Rosneft. Vedomosti quoted two federal officials and sources acquainted with the Alliance Oil executives as saying that the transac-tion is still being considered, but Alliance Group has officially denied the report.

Industry analysts do not rule out the possibility that the Alliance Oil consolidation may be un-

“Alliance Group believes that the transformation of the company from a public firm into a pri-vate entity will ensure a stra-tegic approach to operational challenges and opportunities, as well as earnings growth and the simplification of the corporate governance struc ture”

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DOMESTIC M&A TRANSACTIONS, OCTOBER 2013

Description of the deal Asset owner BuyerTransneft head Nikolai Tokarev said that the planned privatization of a 3 percent state-owned stake in the company should not take place earlier than 2016.

The Russian State holds 78 percent of Transneft’s shares (100 percent of the voting shares). The preferred stock is held by private owners.

–

The Russian government has approved the auction of Gazprom’s 24,071 million common shares in Gazpromgeofizika (51 percent of the share capital). The auction is expected to take place in the open form, the starting price is to set at the market level or above it.

Gazprom – 51 percent. Factoring Finance (a subsidiary of Gazprominvestholding, owned by Alisher Usmanov) – 21.18 percent.

–

Gazprom Neft has not received an offer from Rosneft to buy out Gazprom Neft’s stake in the two companies’ joint asset, Slavneft.

Rosneft’s purchase of TNK-BP made the state company a 50-percent owner of Slavneft, along with Gazprom Neft.

–

International oil trader Gunvor, controlled by Gennady Timchenko, plans to acquire a stake in a refinery in Europe and continues to explore opportunities in Asia and, in particular, refineries in Mongolia.

Refining assets in Europe and Mongolia. Gunvor

The Federal Antimonopoly Service (FAS) has approved Bashneft’s petition to fully acquire Bashneftegazrazvedka.

The owners of Bashneftegazrazvedka (four private investors)

Bashneft

Gazprom Energohoding (GEH) is in talks to acquire energy assets in Russia. In early August, GEH, which controls Mosenergo, acquired a 89.97-percent stake in the Moscow United Energy Company at a starting price of RUB 98.6 billion. The deal is financed by Gazprom.

Unspecified energy assets in Russia Gazprom Energoholding (Gazprom)

NOVATEK is interested in participating in Gazprom’s project to build a plant for the production of liquefied natural gas (LNG) in the Baltic Sea. Gazprom has identified a list of potential partners for the Baltic LNG project.

Gazprom's Baltic LNG NOVATEK

The FAS approved an application from Bashneft Dobycha, Bashneft’s main oil production asset, to acquire the Geoneft oil producer in the Orenburg region.

Geoneft (a unit of Bashneft) Bashneft Dobycha

The FAS approved an application from Gazprom Gazoraspredelenie to acquire 100 percent of the share capital of the following companies in Omsk: Omskgazstroyekspluatatsia, Gorgazekspluatatsia, Sintez, Omsk Automobile Gas Filling Stations, Omskgazekspluatatsia and Omskgazset. The FAS also allowed Gazprom Gazoraspredelenie to acquire 100 percent of the voting shares of Omskgorgaz.

Gas distribution companies in the Omsk region Gazprom Gazoras-predelenie

A joint venture between Gazprom Neft and SIBUR could acquire 50 percent in the Omsk polypropylene plant, Polyom, within the next month. In August, FAS approved the petition of Sibgazpolimer (St. Petersburg) to acquire a 50 percent stake in Polyom.

Sibgazpolimer is owned by SIBUR Holding and Gazprom Neft Finance on a parity basis.

Uralsib bought a 10 percent in Novorossiysk Commercial Sea Port (NCSP) on behalf of Transneft, a client of the bank’s.

The shares were purchased in the market Transneft

Rosneft, despite objections from some minority shareholders of RN-Holding, will buy back their shares at prices that had been announced by Rosneft in late September: RUB 67 per common share and RUB 55 per preferred share. In order to go ahead with the deal, the state-owned company has secured the backing of CitiGroup, which said these prices were market-based.

Minority stake in Rosneft-Holding (previously TNK-BP Holding)

Rosneft

Rosneft announced the value of its purchase of 49 percent stake in Itera at RUB 191 billion, bringing its ownership stake to 100%. In early July of last year, Rosneft acquired a 6 percent stake in Itera, and in August the state-owned company completed the acquisition of 51 percent in the oil and gas firm.

49 percent in Itera from its previous owners, purchased in July 2012

Rosneft

Rosneft in the third quarter sold 9.989 percent in RN Holding (former TNK -BP Holding) to unnamed third parties for RUB 97 billion. Based on Rosneft’s proposed offer price to minority shareholders (RUB 67 per common share and RUB 55 per preferred share), the 9.989 percent stake in Holding RN is valued at approximately RUB 102.8 billion.

9.989 percent in Rosneft’s RN Holding Anonymous third parties

NOVATEK and Gazprom Neft, which together own 51 percent in the Severenergia gas firm, last week made an offer to the Italian partners Enel and Eni to buy out their shares. The total offer of $4.9 billion includes $2 billion for the Enel share of 19.6 percent and $2.9 billion for the Eni stake of 29.4 percent.

A joint venture between Italian Eni and Enel - which hold 60 percent and 40 percent in the JV, respectively - owns a 49-percent share in Severenergia. The remaining 51 percent are controlled by a joint venture between Gazprom Neft and NOVATEK.

Gazprom Neft and NOVATEK

Bashneft sold 832,082 of its voting shares to its own affiliate Bashneft Investments SA, and provided the affiliate with a $230 million loan. Under the decision, Bashneft Investments S.A. will exercise the right to buyback Bashneft's 832,082 common shares and 4.731 million preferred shares worth up to $260 million from United Platform SA (Luxembourg). The shares, which make up about 2.45 percent of Bashneft, were purchased by the company during reorganization in 2012. In June 2013, the shares were sold to United Platform SA for $257 million, with Bashneft retaining the right to repurchase them within six months from the date of the transaction.

832,082 of Bashneft’s voting shares (2.45 percent of share capital)

Bashneft Investments S.A. (wholly-owned subsidiary of Bashneft


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dertaken as preparation for its further sale. This opinion is shared by Investcafe analyst Grigory Birg and Raiffeisenbank analyst Andrei Polishchuk. Barsky’s involvement makes this scenario even more plausible.

LAST REMAINING ATTRACTIVE ASSETExillon Energy, a mid-sized British oil company with assets in Russia, has announced that it may be fully sold before the end of 2013. According to sources at Exillon, the company has already been approached by potential investors, all of which have signed non-disclosure agreements and which are currently assessing the company’s perfor-mance. According to unofficial information, Exillon Energy has received offers from some of the larg-est Russian oil industry players, including Rosneft, Gazprom Neft, LUKOIL, as well as Independent Oil

Company, owned by the former First Vice President of Rosneft Eduard Khudainatov.

According to Exillon Energy, Goldman Sachs International is acting as a financial adviser for the transaction, and due diligence is already in process. The company expects to receive offers from potential buyers by the end of this year, but said that plans to move forward with the sale have not been finalized, despite the fact that its board of directors has unanimously voted for exploring such a possibility.

Rumors on the possible sale of Exillon Energy had been circulating in the market for a year before the company in July announced that its largest share-holder, Kazakh businessman Maksat Arip (who owns 30.2 percent) may buy out the other shareholders’ stakes. However, the board of directors believed that the company was undervalued and in September decided to review its activities for its potential sub-

DOMESTIC M & A DEALS, SEPTEMBER 2013 (continued from p.42)

Description of the deal Asset owner BuyerNOVATEK considers Chinese and Indian companies as the most likely candidates to join the Yamal LNG project. On 5 September 2013, NOVATEK and CNPC signed an agreement on the Chinese company’s acquisition of a 20 percent stake in the Yamal LNG project. France’s Total owns another 20 percent in the project. NOVATEK plans to retain a stake of 51-56 percent in Yamal LNG.

NOVATEK’s Yamal LNG project Unnamed Chinese and Indian companies

Sovcomflot is considering participating in new offshore drilling projects as part of a joint venture (JV) with a foreign partner.

JV of Sovcomflot and a foreign partner

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The FAS granted a two month extension to Sakhalin-Shelf-Service (a JV between Rosneft and Japan’s Marubeni) for considerations to acquire 100 percent of the Vybor oil trader (Sakhalin Region, Kholmsk).

The founders of the Vybor oil trader are three Russian citizens

Sakhalin-Shelf-Service JV

The FAS approved a petition by Shell Oil to acquire 100 percent of the book value of the main fixed assets and intangible assets of PiterStroi.

PiterStroi Shell Oil

The Urals Energy oil company has been approached with a takeover offer at 12.25 pence per common share. The price was 63 percent higher than the Urals Energy share price of 7.5 pence at the close of trading on the London Stock Exchange on 11 October. Urals Energy did not disclose the name of the potential buyer, but according to market rumors, Alltech Group is trying to gain control of the oil company.

30.6 percent of Urals Energy are jointly owned by investment funds Fire East Corporation and Alpcot Capital Management

Undisclosed

Exillon Energy plans to decide on a takeover offer by the end of this year. According to unofficial sources, Exillon Energy has received offers from some of Russia’s largest oil industry players, including Rosneft, Gazprom Neft, LUKOIL, as well as Independent Oil Company, owned by former Rosneft Vice President Eduard Khudainatov.

– –

Rosneft and China's CNPC intend to create a joint venture for the development of the Srednebotuobinsky field, which Rosneft received as part of the consolidation of Taas - Yuryakh Neftedobycha.

JV of Rosneft and CNPC –

Alexander Chistyakov, the president and a co-owner of Ruspetro plc, operating in Western Siberia, transferred 3.43 percent in the firm from Wind River Management Limited (WRM) to Bristol Technologies Limited (BTL), also controlled by Chistyakov. In April 2013, BTL, 100 percent owned by Chistyakov, acquired a 50 percent stake in WRM. The latter owned 22.86 million shares of Ruspetro, and half of the shares were transferred to BTL. Ruspetro plc held IPO in January 2012 at the LSE.

Internal asset restructuriing –

Alliance Group is going to consolidate 100 percent of Alliance Oil in its subsidiary Alford Financial and delist all its shares. Alliance Group has also said that the buyback of the Alliance Oil shares is not made for the purpose of the subsequent sale of all or part of the oil company to a third party.

Alliance Group owns 45 percent of the common shares of Alliance Oil, as well as 7 percent of preferred stock in the form of Swedish Depository Receipts (SDRs).

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FOREIGN M&A TRANSACTIONS, OCTOBER 2013

Description of the deal Asset owner BuyerLUKOIL intends to sell its 20 percent stake in the National Oil Consortium (NOC), which is currently responsible for developing the large Junin-6 deposit in Venezuela. If NOC members Rosneft and Gazprom Neft refuse to buy LUKOIL’s share, the company may sell it to a third party within a year.

Rosneft – 60 percent Gazprom Neft – 20 percent LUKOIL – 20 percent

Rosneft, Gazprom Neft or a third party

Gazprom Neft remains interested in the Elephant project in Libya. Gazprom Neft had planned to become the operator of the Elephant project, but armed conflict in Libya put a halt to Gazprom’s entry. After the force majeure period in Libya, Gazprom Neft had a year to exercise an option to acquire a 33 percent stake in the Elephant project for $163 million from Italy’s Eni, which controls 50 percent of the project. The option expired on 22 December 2012, and was extended for another year.

Eni – 50 percent Libya’s National Oil Corporation – 50 percent

Gazprom Neft

Gazprom Neft, Zarubezhneft and Rosgeologiya are interested in pursuing oil exploration and production projects in Angola. The country is planning to auction up to 15 oil blocks in 2014. In addition, Angola is willing to consider Rosneft’s proposals concerning the oil production in the southern African country, although its government has yet to receive such proposals from the Russian company.

Government of Angola Gazprom Neft, Zarubezhneft, and Rosgeologia

LUKOIL in 2013 will increase to 100 percent its share in Sicily’s ISAB refinery by buying the remaining 20-percent stake for 400 million euros. The board of the Italian energy company ERG, LUKOIL’s partner in the JV operating the refinery, approved the sale in October.

LUKOIL – 80 percent Italy’s ERG – 20 percent

LUKOIL

Gazprom became the fourth Russian company – apart from Rosneft, LUKOIL and NOVATEK – to apply for the participation in the tender to get the exploration rights for 10 offshore blocks in Lebanon.

Government of Lebanon Gazprom

Bashneft won the second licensing round in Myanmar. The Russian company will enter into a production sharing agreement (PSA) for the EP-4 oil block and act as the project’s operator.

Government of Myanmar Bashneft

Gazprom Neft would consider participation in the tender to buy the state-owned shares of the Belarus’ Mozyr refinery, if Minsk announces the tender. Belarus plans to auction its entire Mozyr refinery share of 42.76 percent with the book value of approximately $518 million. At the same time, Minsk is going to sell MNPZ Plus, which owns 12.25 percent in the refinery.

Government of Belarus Gazprom Neft

LUKOIL is considering listing its shares on the Hong Kong Stock Exchange. There is currently no bilateral agreement in place authorizing Russian companies to directly list their shares in Hong Kong.

LUKOIL potential IPO on the Hong Kong Stock Exchange

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The Serbia government’s Council for Combating Corruption suspects LUKOIL and the state privatization agency of violations during the sale of the Serbian national oil company, Beopetrol, in 2003 . LUKOIL paid 117 million euros for 79.5 percent in Beopetrol, which controlled about 20 percent of Serbia’s retail fuel market, with the commitment to invest additional at least 85 million euros in the firm’s development. During the privatization, LUKOIL provided a bank guarantee for 41 million euros, and then took loans of 105 million euros and 10.2 million euros from Beopetrol itself in 2004 and 2005, respectively. Thus, the state could have sustained losses of 100-150 million euros.

Alleged violations during privatization

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Gazprom by the end of the year plans to provide the European Union antitrust regulators with the documents relating to the Russian company’s asset swap agreement with Germany’s Wintershall (a 100-percent subsidiary of BASF). According to the last November agreement, Wintershall will receive 25 percent plus one share in Blocks 4 and 5 of the Achimov deposits of the Urengoi field in Western Siberia, with an option to increase the stake to 50 percent. As a result of the asset swap, Wintershall will leave its trading joint ventures with Gazprom - Wingas, WIEH and WIEE - as well as the operator of natural gas storage facilities Astora, owning the Rehden and Emgum underground gas storages in Germany and the Haidach storage in Austria. Gazprom will also receive 50 percent in Wintershall Noordzee BV, which is engaged in the oil and gas exploration and production in the southern North Sea.

Asset swap between Gazprom and Germany’s Wintershall

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sequent sale. Also in September, Arip announced that he had agreed to sell his share as well.

Exillon Energy is currently developing the Ka-yumovsky and Lumutinsky oil fields in Western Siberia and owns licenses for ten blocks in Timan-Pechora with six known discoveries. The company produced about 640,000 tonnes of crude oil in 2012 and 387,000 tonnes in the first half of this year. According to Kommersant, Exillon’s proven and probable oil reserves totaled 71 million tonnes as of February 2013. In addition to Arip, the com-pany’s shareholders include Schroders plc (13 per-cent), JP Morgan (11.05 percent), Worldview EHS (15 percent), Capital Group Companies (8 percent), and Henderson Global (3 percent). Approximately 20 percent of the company’s shares are listed at the London Stock Exchange (LSE).

Analysts have called Exillon, along with Samara-Nafta, which was purchased by LUKOIL earlier this year, “the last remaining attractive asset” in the Russian oil market. However, Kommersant noted that Exillon’s key performance indicators were weaker than those of Samara-Nafta, which pro-duced 3.5 times more oil than Exillon in 2012.

Exillon Energy, registered on the Isle of Man, is headquartered in Dubai and has Russian offices in Usinsk and Khanty-Mansiysk. The company’s LSE market capitalization makes up just over $530 million, but experts believe that it can be sold at much higher price of around $800 million due to the tight market competition for upstream oil as-sets in Russia.

PENDING AND POTENTIAL FOREIGN DEALSRussian independent oil company LUKOIL said it intends to sell its 20 percent stake in the National Oil Consortium (NOC), currently developing the gi-ant Junin-6 deposit in Venezuela. LUKOIL, Russia’s

FOREIGN M & A DEALS, SEPTEMBER 2013 (continued from p.44)

Description of the deal Asset owner Buyer

Ecuador invited Gazprom to set up an alliance with the state oil company Petroamazonas. Ecuador is currently preparing an assessment of the geological hydrocarbon potential of the country's offshore resources and is going to award a license to Gazprom International early next year.

Assets in Ecuador Gazprom International

Matra Petroleum, an independent oil and gas company whose largest shareholder is former TNK-BP deputy chairman Maxim Barsky, signed an agreement to acquire a North Texas oil and gas block for $28.2 million.

Assets in North Texas (USA) Matra Petroleum


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second-largest oil company, has informed consor-tium partners Rosneft and Gazprom Neft about the planned exit, which, according to LUKOIL, will help “optimize its portfolio of assets.” However, according to industry sources, LUKOIL’s exit was actually driven by its dissatisfaction in its role as a financial investor with “large capital costs and dim prospects to earn a return.” LUKOIL’s stake in NOC is valued at $200 million.

If Rosneft and Gazprom Neft opt not to buy LU-KOIL’s share in NOC, the company can sell it to third parties within a year. Both Rosneft and Gaz-prom Neft are interested in expanding their stakes in NOC, with Rosneft CEO Igor Sechin discussing an NOC expansion with reporters on 4 October and head of Gazprom Neft Alexander Dyukov making a similar announcement.

NOC participants chose Rosneft the operator of the Junin-6 project in January 2013, when the Rus-sian state-owned oil company increased its share to 40 percent by buying a 20 percent stake from Surgutneftegaz. After Rosneft acquired TNK-BP, its NOC share reached 60 percent. LUKOIL and Gazprom Neft hold 20 percent each.

The Junin-6 block is being developed by a Russian-Venezuelan joint venture, Petromiranda, in which Venezuelan national oil company PDVSA owns a 60 percent stake (40 percent is held by NOC). The field, located in the oil basin of the Orinoco River, is one of the largest in Venezuela, with recoverable hydro-carbon resources estimated at 8.5 billion tonnes.

Russian companies have also been active in an-other Latin American country: Ecuador. The Ecua-dorean government has invited Russia’s Gazprom to set up an alliance with the state oil company Petroamazonas, said Gazprom International, which operates Gazprom’s overseas projects. Ecua-dor’s coordinating Minister for Strategic Sectors (equivalent to the rank of Deputy Prime Minister) Rafael Poveda said during his visit to Russia that Ecuador was currently preparing a geological as-




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sessment on the hydrocarbon potential of the country’s continental shelf and is going to give the data to Gazprom Inter-national early next year. “We share your strategic vision of the outlook for Latin America and would like to see Gazprom International in Ecuador as part of a stra-tegic alliance with our national oil and gas company Petroamazonas,” Poveda said. He added that Ecuador was in the middle of changing its energy mix: as the country continues to develop its hydroelectric power sector, the government intends to gradually move from the consumption of imported liquefied natural gas (LNG) to its own natural gas output.

Separately, the board of directors of Italian energy company ERG in October approved the sale of the remaining 20 percent share in the JV operating Sicily’s ISAB refinery to LUKOIL for EUR 400 million. The transac-tion is expected to be finalized at the end of 2013. LUKOIL in February 2009 com-pleted the EUR 1.45 billion deal to acquire a 49 percent stake in the joint venture. Since then, the Russian company has gradually increased its stake in the refinery to bring it to 80 percent.

Gazprom Neft said that it would consider participating in the tender to buy the state-owned shares of the Mozyr refinery in Belarus if Minsk announces the tender. Belarus plans to auction its entire Mozyr refinery share of 42.76 percent with a book value of approximately $518 million. At the same time, Minsk is going to sell MNPZ Plus, which owns 12.25 percent in the refinery. Another 42.58 percent share is owned by Russia’s Slavneft, controlled by Gazprom Neft and Rosneft on a parity basis. The remaining shares in the refinery are held by individual investors. The buyer of the state stake will have to fulfill a number of obligations, which include providing crude to fully utilize the refin-ery’s capacity, supplying fuel to Belarus’ domestic market, implementing invest-ment projects and maintaining high local employment rates.

Outside of Belarus, international oil trader Gunvor plans to diversify its business and buy ownership stakes in refineries in Europe and Mongolia, Gunvor co-owner Gennady Timchenko said in an interview with Kommersant. In addition, Timchenko, who is also a co-owner of NOVATEK, said

that the gas company was interested in participating in Gazprom’s LNG-project on the Baltic Sea. Gazprom has recently announced that it has compiled a list of potential partners for the Baltic LNG project, but so far has kept the list secret. Gazprom is willing to give partners a total of 49 percent in the project, provided that they will purchase at least 6 million tonnes of the facility’s planned LNG an-nual 10 million tonne output.

Another NOVATEK co-owner and CEO, Leonid Mikhelson, said that the company considers Chinese and Indian companies as the most likely candidates to join the Yamal LNG project as new partners. Rus-sian Energy Minister Alexander Novak in late September said that NOVATEK was in talks with companies from India, China, and Japan about a 9 percent owner-ship stake in Yamal LNG. At this point, Mikhelson believes that participation by a Japanese company in the project is un-likely because Tokyo has yet to decide on the future of its nuclear energy industry. According to Mikhelson, a new Yamal LNG partner may be chosen by the end of the year, and the Chinese companies under consideration are not limited to CNPC.

As reported earlier, NOVATEK and CNPC on 5 September 2013 signed an agree-ment on the Chinese company’s acquisi-tion of a 20 percent stake in Yamal LNG. France’s Total owns another 20 percent in the project. Mikhelson had earlier said that NOVATEK plans to retain a stake of 51-56 percent in Yamal LNG.

ON DISTANT SHORESGazprom became the fourth Russian company after Rosneft, LUKOIL, and NOVATEK to apply to participate in the tender for exploration rights for 10 off-shore blocks in Lebanon, announced the country’s Minister of Energy and Water Resources Gibran Bassil. In April of this year, Rosneft, LUKOIL, and NOVATEK all qualified to participate in the first licens-ing round for offshore exploration licenses in Lebanon. In addition to the Russian firms, bidders included 42 international companies such as Total, ExxonMobil, Chevron, Italy’s Eni, Norway’s Statoil, Royal Dutch Shell, as well as Japanese, Korean and Indian companies. The Leba-

nese authorities plan to announce the tender results in February 2014.

Also in October, Bashneft won the second licensing round in Myanmar. The Rus-sian company will enter into a production sharing agreement (PSA) covering the EP-4 oil block and become the project’s operator. According to a company state-ment, Bashneft will receive a 90 percent stake in the project, while the remaining 10 percent will be held by Sun Apex Hold-ings, a local Lebanese company recom-mended to Bashneft by Myanmar’s energy ministry. The EP-4 block, with an area of 841 square kilometers, is located in Myanmar’s central oil and gas basin. The 2D seismic survey covering a total of 132 kilometers was conducted at the field, and three exploration wells have identified six prospective oil structures. The EP-4 block is located in a region of Myanmar with well-developed infrastructure for the transportation and refining of oil and gas. Under the PSA terms, which include a $4 million signing bonus, the participants will have three years (with a possible three year extension) to implement an explora-tion program, including seismic surveys and the drilling of two exploration wells. Investments in exploration are expected to total $38.3 million.

In other international news, Gazprom Neft, Zarubezhneft and Rosgeologia have all announced that they are interested in pursuing oil exploration and production projects in Angola, said the Russian Minis-try of Natural Resources and the Environ-ment (MNRE). According to the Ministry’s statement, MNRE head Sergei Donskoi and Angola’s Minister of Geology and Mines Francisco Manuel de Queiros have held a meeting in Luanda and agreed to meet again in Moscow in early 2014.

In addition, Angola is willing to consider proposals from Rosneft concerning oil production in the southern African coun-try, although its government has yet to re-ceive any formal proposals from the Rus-sian company, said Angola’s Oil Minister, Jose Maria de Vasconcelos. “We have not yet received a request from Rosneft. But we are willing to listen to their proposals,” he said during International Energy Week. According to the Minister de Vasoncelos, the country is planning to auction up to 15 oil blocks in 2014.



REGIONAL NEWS

RUSSIA MAY UP URALS OIL EXPORTS TO BELARUSRussia is poised to raise its Urals oil deliveries to neighbouring Belarus in December by 750,000 tonnes, increasing upward pressure on Baltic prices of the blend, according to traders. The expected increase in supplies follows signs that Moscow and Minsk have mostly resolved their differences over the arrest of the head of a Russian potash company. A trader said Russian oil pipeline monopoly Transneft had signalled it was ready to pump more oil to Belarus. A spokesman for Transneft declined to comment. An industry source said Russia’s Energy Ministry may approve increased supplies soon. Traders said they were likely to divert some cargoes from the Baltic Sea to Belarus, where Russia ships its oil duty-free inside a Moscow-led customs union. Russian Urals crude prices have already strengthened this week on a thin shipping programme for seaborne deliveries in December. «Russian oil companies would be glad to use it (an increase in quotas),» a trader said. Russia and Belarus have been involved in a trade spat over the arrest of Vladislav Baumgertner, the head

of Russian potash maker Uralkali in Minsk in August. Last week, Belarus extradited him to Moscow. «If the increased schedule is in place, they would divert a ship from Primorsk (to Belarus),» another trader said. A full December Urals programme showed exports would decline as refineries scale back maintenance programmes. The Baltic Sea port of Primorsk will be decreasing loadings to 4.31 million tonnes next month from 4.48 million tonnes planned for November. Neighbouring Ust-Luga is set to cut Urals exports to 1.8 million tonnes in December from 2.2 million in November. The Black Sea port of Novorossiisk is seen cutting loadings to 2.67 million tonnes from 2.75 million expected this month.

RUSSIA AGREES TO SHIP OIL TO CHINA VIA KAZAKHSTANRussia’s state-owned Rosneft said in November it had agreed on the basic principles for shipping oil to China via neighboring Kazakhstan in a deal essential for the Russian company to honour its supply commitments to Beijing. The preliminary agreement was signed

by executives of Rosneft, Kazakh state oil firm KazMunaiGas and oil pipeline monopoly KazTransOil. No details were disclosed, but sources familiar with the agreement told Reuters that Rosneft would supply 7 million tonnes a year (140,000 barrels of oil per day) to China via Kazakhstan. Rosneft would pay export duty to the Russian state, the sources said. Russia and Kazakhstan are part of a Moscow-led duty-free customs union, and the issue of how export duty would be levied was one key obstacle to the agreement. The fee stands at $395.90 per tonne in November. In return, KazTransOil would cut transportation tariffs for Rosneft, which aims to start shipping oil next year, a source in Kazakhstan said. The sources said Rosneft and Kazakhstan plan to clinch a final deal by the year-end. Rosneft, the world’s largest listed oil company by output, is preparing to triple oil exports to China to some 1 million barrels per day (bpd), seeking to secure market share and billions of dollars in pre-payments. But it lacks infrastructure to ship increased volumes to Beijing and has been considering shipments via Kazakhstan of up to 10 million tonnes a year (200,000 bpd) starting from Jan. 1, 2014, sources told Reuters earlier this year.

UKRAINEUKRAINE, SLOVAK AUTHORITIES STILL IN GAS-LINK TALKSUkrainian and Slovak authorities are in «very constructive negotiations» and could sign a reverse-flow pipeline deal next week to curb Ukraine’s dependence on Russian gas, officials from Kiev and Brussels said. European Commission officials and Ukraine’s energy minister said earlier this month a deal to ship gas through Slovakia was all but agreed and just needed to be signed by both sides. Since then, Kiev has said it is not ready to sign a broader deal with Europe called the Eastern Partnership, a four-year-old programme of outreach to former Soviet states. But officials said the pipeline agreement was still possible, which would mean that companies can change the destination of Russian gas intended for the EU. «We are discussing all details in a bid to sign next week,» Ukrainian Energy Minister Eduard Stavytsky told Reuters in Vilnius in November. The first shipment of gas from Europe via the Slovak link could take place in the second half of next year, he added. European Energy Commissioner Oettinger said the deal was not complete but that «very constructive negotiations» continued, when he was asked about the pipeline agreement on the sidelines of an industry conference in Berlin. Brussels has a keen interest in strengthening ties with Kiev, whose gas price disputes with Russia’s state-controlled Gazprom have disrupted supplies to Ukraine and the European Union. Along with the talks on a wider political partnership, EU officials have been seeking to convert Ukraine from a transit state for Russian gas into an energy hub. Under this plan, Ukraine would develop its own shale gas reserves and ship gas to and from the 28-country European Union with the help of pipelines in both directions and reverse flow. Ukraine is torn, however, between pressure from Russia to stay within its orbit and popular domestic clamour to throw in its lot with the EU.

UKRAINE SIGNS A $4 BLN OIL&GAS DEAL WITH ENI AND EDFUkraine signed an offshore oil and gas production-sharing agreement with Italian group Eni and France’s EDF on Wednesday and Kiev ’s energy minister estimated the project could draw up to $4 billion of investment. The scheme to explore for oil and gas on the western Black Sea’s shallow shelf could provide Ukraine with up to 3 million tonnes of oil a year, Energy Minister Eduard Stavytsky was quoted as saying by Ukrainian news agency UNIAN. The former Soviet republic consumes around 5 million tonnes of oil per year, including 1.5 million tonnes of imports that are mostly from Russia. The UNIAN report gave no details on expectations for gas production. Eni said in a statement the agreement signed on Wednesday concerned a 1,400 square-km area in waters off Western Crimea. The area includes the Subbotina oil licence as well as the Pry Kerch block where several oil and gas prospects have been identified. Eni, which already has a shale gas deal in Ukraine, said it would be the operator in the venture with a stake of 50 percent. France’s EDF holds 5 percent in the deal while state-controlled firms Vody Ukrainy and Chornomornaftogaz will have 35 percent and 10 percent respectively. Ukraine relies on Russia for the vast majority of its oil and gas imports, and Moscow has been accused of using energy to exert political influence over Kiev. The European Union said Russia applied economic pressure on Kiev to suspend the signing of a landmark free-trade pact with the 28-nation bloc that would mark a shift away from Russia’s sphere of influence. The agreement with Eni and EDF would be the third large energy project launched by Ukraine in the past two years as it steps up efforts to gain greater energy independence. Ukraine now pays more than any other European country for Russian gas, with Moscow charging $400 per thousand cubic metres under a 10-year agreement signed in 2009, and it has failed in attempts to renegotiate terms with Moscow.

RUSSIA

LITHUANIALITHUANIA GETS EU APPROVAL FOR STATE AID TO LNG PROJECTLithuania won approval from the European Commission to provide 448 million euros ($606 million) in loan guarantees and other aid to finance a liquefied natural gas terminal, which will reduce its dependence on Russian gas. The project, developed by Klaipedos Nafta, a majority state-owned oil importer, could become the first LNG import terminal on the eastern coast of the Baltic Sea if it comes online as planned in December 2014. «The aid will reduce Lithuania’s dependence on a single source of gas supplies and enhance its security of supply,» Joaquin Almunia, commission vice-president in charge of competition, said in a statement. «By diversifying the gas supply sources, the terminal will also stimulate competition between

gas suppliers, which in turn will benefit consumers,» he added. The aid includes government loan guarantees for the project and payment to Klaipedos Nafta of a fee that Lithuania imposes on all users of its gas transmission system, the so-called «LNG supplement». The government introduced the fee in 2013, and it amounts to about 17 million euros per year. Lithuania’s top gas consumer Achema, which produces fertilisers, has challenged the fee, saying it undermines competitiveness. The EC approval was needed to release a 87 million euro loan agreed by the European Investment Bank (EIB) in July after Klaipedos Nafta failed to attract funding for the project from commercial banks. The operator will be obliged to provide regasification services to any third party on regulated tariffs and under non-discriminatory conditions, the Commission said. An LNG terminal project in neighbouring Poland was delayed due to financial problems

plaguing its builders and is now expected to be completed by the end of 2014. Klaipedos Nafta has signed an agreement to lease a floating storage and regasification unit (FSRU) from Norway’s Hoegh LNG for 10 years, with an option to buy it later. The vessel, which will serve as a floating import terminal at Klaipeda port, will be able to import 2-4 billion cubic metres of natural gas per year from 2015, though imports are expected to be minimal in the first year. Lithuania launched a tender to buy LNG a year ago, but no contracts have been signed yet. Klaipedos Nafta has said the terminal needs to import at least 0.54 bcm of gas per year to remain operational, which amounts to six to seven standard LNG cargoes. The Baltic state, which bought 3.3 bcm of gas from Russia’s Gazprom last year, paid one of the highest natural gas prices in the EU, the Commission said. Gazprom’s long-term supply contract with Lithuanian gas utility Lietuvos Dujos expires in 2015.



REGIONAL NEWS(continued from p.46)

EUROPEAN REFINERS, ON THE ROPES, FACE KNOCKOUT BLOW FROM RUSSIARussia will flood Europe with diesel and starve it of heavy fuel oil when the country completes a $55 billion refining overhaul, further threatening the continent’s downstream sector as it struggles to survive. The investments, which seek to capture more value from each barrel of Siberian crude by refining it more deeply in Russia, would choke flows of straight-run fuel oil used as a feedstock by Europe’s advanced processing units. Russia’s Soviet-built refineries, some dating to the 1940s, mainly operate simple distillation units. Straight-run fuel oil, known as mazut, is the residue left after lighter fractions are evaporated off. The planned installation of 130 new units, such as the long-awaited 60,000-barrels-per-day (bpd) hydrocracker at Surgut’s northwestern Kirishi refinery, will enable Russia to increase yields of lighter products instead. That will create a huge surplus of high-quality diesel on Europe’s doorstep. If that isn’t bad enough, the world’s largest oil producer wants to triple crude exports to China. With Russian oil output likely to stagnate in the years ahead, Europe’s refiners may find margins squeezed further by a dearth of Urals export crude. «European refineries are going to be hit across the board,» said Heitham Tolba, a downstream analyst for energy consultants Wood Mackenzie. Russia exports around 3.5 million bpd of crude to Europe. Fuel exports total 700,000 bpd - a third of Russia’s overseas oil product deliveries. The government backed the refinery overhaul in 2011 after gasoline supplies almost ran dry due to a lack of modern refining capacity, riling drivers not long before Vladimir Putin’s election to a third Kremlin term. The upshot of ensuring that motorists have enough premium gasoline to fuel Russia’s growing fleet of Western-made cars will be a diesel surplus that could reach 65 million tonnes a year by 2020, Moscow’s Skolkovo business school estimates. Russia’s primary refining capacity, which distills oil into basic fractions such as naphtha, fuel oil and low-quality diesel, will expand by only 7.5 percent to around 285 million tonnes (5.7 million bpd) by 2020, according

to the plan. Secondary refining, in which complex hydrocarbons are «cracked» into simpler ones, will grow by 90 percent over the same period to match Russia’s primary refining capacity. This will boost output of high-quality products, including ultra-low-sulphur diesel (ULSD) with sulphur content of 10 parts per million (10 ppm). Russia will require vehicles to use ULSD from 2016. In addition to the diesel glut, Skolkovo expects Russia to produce a gasoline surplus of 10 million tonnes in 2020. This assumes that domestic consumption of oil products will grow at a yearly rate of 3.5 percent, even after allowing for fuel-efficiency improvements in Russia’s vehicle fleet. The European market, now experiencing diesel shortages, would be the main destination for the surplus, as most Russian refineries are located in the west of the country. Wood Mackenzie expects Russian ULSD output to top 1.1 million bpd in 2016, up from 750,000 bpd now. Exports may double to 680,000 bpd as Russia competes with European refiners to fill a growing diesel shortfall. European refineries are already suffering from low margins, forcing around 1.8 million bpd of capacity to be mothballed since 2009, according to Deutsche Bank. That leaves 10.7 million bpd of operating capacity in the European Union plus Norway. The plants most vulnerable to closures are the less complex refineries in the Atlantic basin that rely heavily on gasoline exports. Exporters of high-quality Russian oil products to Europe have also been encouraged by a decision to tighten environmental rules there. These state that from 2015, the maximum sulphur content of shipping fuels will be cut by 90 percent to 0.1 percent in Sulphur Emission Control Areas, which include some of Europe’s busiest sea lanes. At the same time, European refineries are cutting runs as diesel production requires a strong premium to prices for benchmark grades such as North Sea Brent crude to be profitable. In its 2025 outlook, Russia’s second-largest crude producer Lukoil said net diesel exports from the United States would peak at 500,000 bpd in 2015. That contrasts with net imports of 200,000 bpd back in 2005. «The Russian refiners are close to European markets and they have the advantage of a local supplier. They still have to compete against the Americans - but they have the advantage of the proximity,» said WoodMac’s Tolba.

DOWNSTREAM ARCTICAS ARCTIC ICE MELTS, U.S. MILITARY ADAPTING STRATEGY U.S. Defense Secretary Chuck Hagel announced in November the Pentagon’s first Arctic strategy to guide changes in military planning as rapidly thawing ice reshapes global commerce and energy exploration, possibly raising tensions along the way. Ice on the Arctic Ocean shrank last year to its lowest levels since satellite observations began in the 1970s, and many experts expect it will vanish in summers by mid-century due to climate change. As the sea ice thaws, ships are increasingly using a shortcut between the Atlantic and the Pacific, and competition is intensifying for Arctic oil and gas, estimated at around 15 percent and 30 percent respectively of undiscovered reserves. Hagel, addressing a security forum in Canada, said the military would «evolve» its infrastructure and capabilities and would keep defending U.S. sovereignty in and around Alaska while working to help ensure freedom of the seas. Part of strategy would also include bolstering U.S. military ties with fellow Arctic nations, including Russia. Russian President Vladimir Putin has described the Arctic as crucial to Russia’s economic future and security, and has redeployed forces to the region. «Throughout human history, mankind has raced to discover the next frontier. And time after time, discovery was swiftly followed by conflict,» Hagel said. «We cannot erase this history. But we can assure that history does not repeat itself in the Arctic.» In September, Putin announced Russia was reopening a Soviet-era military base in the Arctic, part of a drive to make the northern coast a global shipping route and secure the region’s vast energy resources. Meanwhile, the U.S. military has an extensive presence in Alaska, with around 27,000 U.S. forces there. Hagel noted that the U.S. military had ski-equipped C-130s and nuclear submarines with decades of operations in polar regions. One U.S. official, briefing reporters on condition of anonymity, played down any current tensions with Russia over the Arctic. The official noted that the U.S. Coast Guard had experienced «quite positive» interaction with its Russian counterparts over the years. Hagel stressed the opportunity for strengthening ties in the region. «By taking advantage of multilateral training opportunities with partners in the region, we will enhance our cold-weather operational experience, and strengthen our military-to-military ties with other Arctic nations,» he said. «This includes Russia.»

CORPORATE NEWS

UPSTREAMROSNEFT SEES 1 MLN BPD FROM VENEZUELARosneft expects oil output at its projects in Venezuela, where production has been stagnant in recent years, to reach 1 million barrels per day (bpd) by 2019-2020, company president Igor Sechin said. Venezuela, whose economy is heavily dependent on oil production, is hoping that new projects in the Orinoco crude belt will help increase output. A statement from Rosneft cited

Sechin, a long-standing ally of Russian President Vladimir Putin, as saying after a trip to Latin America last week that oil production at Rosneft’s joint ventures in the Orinoco belt would reach 280,000 bpd in 2016 and rise further in 2017. «Such dynamics of assets and production development would allow us to reach the level of at least 1 million bpd in 2019-2020,» Sechin is quoted as saying at a conference. Venezuela is the world’s 11th largest crude exporter but foreign companies operating there have faced

price controls and currency devaluations along with threats of nationalisation, leading several to quit the country. Lukoil and Surgutneftegas have announced that they were leaving the consortium of Russian oil companies in Venezuela, citing a need to focus on other projects. Currently, Rosneft and Gazprom Neft are jointly working in the Junin-6 consortium developing heavy oil in the Orinoco basin. Rosneft is also involved in another Orinoco block to run, Carabobo 2. Earlier this month, Finance

Minister Nelson Merentes said that Venezuela will produce an average 3.1 million bpd of oil in 2014, roughly similar to this year. Oil exports from the country are seen at 2.5 million bpd.

LUKOIL SAYS WILL START WEST QURNA-2Lukoil, Russia’s No.2 oil producer, has had minor disruptions to its operations in Iraq and plans to launch West Qurna-2 oilfield by the end of first

quarter 2014, its Vice-President Andrey Gaidamaka said. «We definitely will start commercial production at the West Qurna field by the end of first quarter,» Gaidamaka told a conference call. «In March-April we will have commercial production at the West Qurna-2 field on stream.» Lukoil had planned to launch West Qurna-2 around the turn of the year. Unrest in Iraq has since affected the operations of drilling companies Schlumberger Ltd and Baker Hughes Inc, with the latter saying this week it was preparing to resume work.



PROFITS & LOSSESROSNEFT LOOKING AT RAISING STAKE IN ITALY’S SARASRussian energy giant Rosneft is looking to raise its stake in Italian refiner Saras but that will depend on decisions by the Italian government, the Rosneft chairman said. «We are working (on raising our stake),» Igor Sechin said at the Russian-Italian summit in Trieste. He said this would also depend on a decision of the Italian government regarding changes to electricity generation tariffs under discussion in Italy. «This influences the economy of this enterprise and we’ll be looking at it,» Sechin said. Rosneft, the world’s top listed oil producer, recently bought a stake of around 21 percent in Saras.

HUNGARY’S MOL FILES FOR ARBITRATION AGAINST CROATIAHungarian oil and gas firm MOL said it had filed a request for arbitration proceedings against the Croatian government for breaching some of its obligations related to MOL’s investments in Croatia. MOL, which holds a 49 percent stake in Croatian peer INA, has been locked in a struggle over management rights with the other main shareholder, the Croatian government. The two sides have held talks since mid-September but have failed to agree on the future of INA. MOL said in a statement it filed a request for arbitration with the International Centre for Settlement of Investment Disputes (ICSID). It said it remained open to resolve the dispute via negotiations, but «it is also under legal obligations to commence legal action to enforce its rights.»

M & A

BASHNEFT TAKES ONE-OFF HIT IN Q3 Russian oil firm Bashneft posted a sharp fall in earnings in the third quarter, hit by a one-off effect from the sale of a stake in a subsidiary and dragging its bottom line to a decline of 21 percent in the year to date. Third-quarter net income at the mid-sized oil producer Bashneft fell by 44 percent to 7.4 billion roubles ($225 million) from the previous quarter, the company said on Monday. It did not publish comparative year-on-year figures. In September, the company divested Belkamneft by selling 38 percent of the share capital to a group of private investors for 6.5

billion roubles. Bashneft, whose key upstream and downstream assets are located in the region of the Urals mountains, plans a listing in London as early as 2014, according to financial sources. Market sources said previously that Bashneft managers have been meeting with bankers to discuss a possible offering following speculation of a takeover by Russia’s top oil producer Rosneft. Rosneft denied any such plan. Bashneft, controlled by billionaire Vladimir Yevtushenkov’s Sistema oil-to-telecoms conglomerate, also said its third-quarter revenues rose 16 percent quarter-on-quarter to 156.6 billion roubles. Its earnings before interest, tax, depreciation and

amortization (EBITDA) increased by 42 percent, to 32.2 billion roubles. That contrasted with a 4 percent decline in the first nine months of the year from the same period a year earlier.

TATNEFT Q3 NET PROFIT DOWNRussian mid-sized oil producer Tatneft posted 23.2 billion roubles ($700 million) in third quarter earnings, down 14 percent year-on-year. Revenues for the period were 123.4 billion roubles, 3 percent down from 127.2 billion roubles in the same period of last year.

TRADINGRUSSIAN PARLIAMENT OPENS UP LNG EXPORTS FOR GAZPROM’S RIVALSRussia’s upper house of parliament approved legislative amendments to allow rivals of state-run Gazprom to export seaborne liquefied natural gas, paving the way for Russia to double its global LNG market share by 2020. Only Russian President Vladimir Putin, who initiated the changes, now has to approve the amendments. Lawmakers had earlier said the

law would come into force next year, three years before the first new LNG plant is launched. State-run Gazprom was awarded exclusive rights to export natural gas in 2006. But changes to the law to open up exports of super-cooled gas have been warranted by increasing competition in the global LNG market from Qatar, Australia and African countries. Gazprom has been slow to develop its own projects. «The decision to increase the line-up of exporters of natural gas in the form of LNG must secure an increase in Russia’s share of the gas market,» an upper house document said.

Gazprom’s monopoly on pipeline gas exports, which are currently pumped only in Europe, stays intact. Russia wants to double its share in the global LNG market by 2020 from 4.5 percent currently. Gazprom and Royal Dutch Shell are key shareholders in Russia’s only LNG plant, located on the Pacific island of Sakhalin. The law would allow Russia’s No.2 gas producer Novatek as well as Russia’s top oil company Rosneft to proceed with their LNG projects, which they want to commission in a few years. The law restricts Rosneft’s LNG exports to those produced from offshore deposits.

CORPORATE NEWS(continued from p.47)

TRANSPORTATIONGAZPROM NEFT TO SHIP 3 MLN TONNES OF OIL TO VIETNAM IN 2015Russia’s Gazprom Neft, the oil arm of state gas monopoly Gazprom, will start shipping oil to Vietnam from 2015 to supply the Dung Quat refinery, in which it will take a stake, a government document showed. While Russian President Vladimir Putin was on a visit to Hanoi in November, Rosneft and Gazprom Neft signed some deals in the energy sector. Among them, Gazprom via its Gazprom Neft unit has agreed to jointly invest with Petrovietnam in Vietnamese firm Binh Son Refining and Petrochemical, which manages the Dung Quat refinery in the central region. Communist Vietnam is one of Russia’s closest allies in Asia, with ties dating back to 1950 when Moscow was part of the Soviet Union. The document published on the Russian government’s website showed that Gazprom will take a 49 percent stake in Binh Son. The Russian company may further raise its stake. After Gazprom buys the stake and during the whole time it is a shareholder in the refinery, it will supply the plant with oil, the

document said. The 130,500-barrels-per-day refinery, the only facility of its kind in Vietnam, has plans to expand output by more than 50 percent to 10 million tonnes per year by 2015. Gazprom Neft will ship 3 million tonnes of oil (60,000 barrels per day) in 2015, 3.6 million tonnes in 2016, 4.8 million in 2017 and at least 6 million in 2018 and beyond. Gazprom Neft will supply the oil via the East Siberia-Pacific Ocean (ESPO) pipeline to load it on tankers in the Pacific Port of Kozmino, the document said. The ESPO pipeline, launched four years ago, marked a strategic shift in Russia’s oil supplies towards fast-growing Asian markets, with state oil company Rosneft preparing to triple its oil exports to China to some 1 million barrels per day. Still, Russia needs to expand existing routes to Asia to honour all its deals. It plans to double the capacity of a special ESPO spur to China and use export infrastructure of neighbouring Kazakhstan to ship crude to Beijing. Gazprom Neft exported around 820,000 tonnes via ESPO in the first six months of this year, planning to deliver another 350,000 tonnes in the third quarter and 400,000 tonnes in October-December, the company told Reuters.

ROSNEFT, ENI AGREE MUTUAL OIL SUPPLY DEAL FOR EUROPEAN REFINERIESRussia’s Rosneft, the world’s top listed oil producer, and Italy’s Eni have agreed to funnel oil supplies to each other’s European refineries, signing the deal during a Russia-Italy bilateral meeting in November. «We (Rosneft) will supply refineries owned by Eni and they will (supply) our refineries,» Rosneft Chief Executive Igor Sechin said just before the agreement was signed in a ceremony in the northeastern Italian city of Trieste. Sechin said under the terms of the deal, Rosneft would supply 1 million tonnes of oil to Eni’s refineries in Germany and the Czech Republic, while Eni would supply 400,000 tonnes to a Rosneft refinery in Germany. Both also plan to invest in a new logistics centre near Venice, according to a statement. Italy must import the vast majority of its gas and oil, and the meeting between Russian President Vladimir Putin and Italian Prime Minister Enrico Letta was preceded by the signing of 21 commercial agreements, mostly in the energy sector. In another accord, Russia’s state-backed private equity investment fund and Italy’s strategic state investment fund agreed to invest up to 1 billion euros ($1.35 billion) in companies and projects in the two countries. «We need to create jobs and the recovery, which is at hand, must be seized,» Letta said during the joint press conference with Putin. «Russia can help us get there.» Italy is struggling to emerge from its longest recession in six decades, which began in mid-2011. The government has said it expects timid growth in the fourth quarter of this year.

SURGUT LAUNCHES EUROPE’S LARGEST HYDROCRACKERRussia’s third-largest oil producer Surgutneftegas launched Europe’s biggest hydrocracker late in December to produce more high-grade fuel, a long awaited step that some analysts said was likely to buoy its share price next year. Russian oil companies have embarked on a $55 billion modernisation programme of refineries up until 2020 to boost output of higher-quality products that are in increased demand and to improve ecological standards. Increased Russian output of such refined products, including ultra low sulphur diesel, is likely to bring a surge in exports that will hit already cash-strapped European refineries. The company spent 88.5 billion roubles ($2.7 billion) to build the 98,000 barrels per day (bpd) unit at its northwestern Kirishi oil refinery. The complex eclipses in size the 56,000 bpd hydrocracker at the Pernis refinery in the Netherlands, Europe’s largest, which is operated by Royal Dutch Shell. It will allow Surgut to increase production of high-grade, ultra low sulphur diesel. Last year, Kirishi’s total oil product output stood at 410,000 barrels per day.

DOWNSTREAM



STATISTICS/September

OIL PRODUCTION IN SEPTEMBER 2013 (thousand tons)

Company September Daily Average +/- Daily . September Vs August

YTD

Vertically Integrated Companies:Bashneft:Bashmineral 0.0 0.00 0.0 1.2 Bashneft 1,361.9 45.40 (0.3) 11,793.7 Geoneft 0.0 0.00 0.0 41.7 Bashneft-Polyus 0.0 0.00 0.0 63.0 Total for Bashneft 1,361.9 45.40 (0.3) 11,899.6 Gazprom neft: Archinskoye 16.7 0.56 (0.0) 142.8 CNT 33.5 1.12 0.2 187.3 Gazprom neft 92.0 3.07 (0.0) 811.5 Gazprom neft Orenburg 96.8 3.23 0.1 732.1 Gazpromneft-Khantos 96.7 3.22 0.0 813.5 Gazpromneft-NNG 853.6 28.45 (0.0) 7,943.9 Gazpromneft-Vostok 84.4 2.81 0.2 710.3 Gazprmneft Novy Port 0.8 0.03 (0.0) 15.9 MAGMA 40.8 1.36 0.0 364.0 Meretoyakhaneftegaz 0.2 0.01 0.0 0.8 Sibneft-Yugra 997.7 33.26 0.0 8,969.1 YuUNG 22.9 0.76 0.0 197.8 Zapolyarneft 344.4 11.48 0.1 2,962.5 Zhivoy Istok 0.1 0.00 0.0 1.6 Total Gazprom neft 2,680.5 89.35 0.6 23,853.0 LUKOIL: Kama-oil 13.7 0.46 0.0 116.1 LUKOIL-AIK 192.6 6.42 (0.0) 1,801.3 LUKOIL-KMN 75.2 2.51 (0.0) 706.8 LUKOIL-Komi 1,167.9 38.93 0.5 10,347.6 LUKOIL-Nizhnevolzhskneft 114.1 3.80 0.2 1,023.6 LUKOIL-Perm 1,100.1 36.67 0.2 9,921.0 LUKOIL-Zapadnaya Sibir 3,675.6 122.52 (0.0) 32,888.9 Brendan 2.3 0.08 (0.0) 16.3 Kondukchaneft 1.9 0.06 (0.0) 12.3 Mushakneft 0.0 0.00 0.0 0.3 Naryanmarneftegaz 90.3 3.01 (0.0) 941.1 NMNG-MNA 11.0 0.37 0.3 62.0 PermTOTINeft 16.1 0.54 0.0 145.7 RITEK 408.0 13.60 0.1 4,473.4 R-Vnedreniye 0.0 0.00 0.0 0.0 Samara-Nafta 215.8 7.19 0.1 1,080.6 Tursunt 9.5 0.32 (0.0) 85.3 UralOil 0.0 0.00 0.0 0.0 Volgodeminoil 45.2 1.51 0.0 365.6 Total for LUKOIL 7,139.1 237.97 1.2 63,988.0 Rosneft: Dagneftegaz 2.2 0.07 (0.0) 19.7 Grozneftegaz 40.0 1.33 0.0 373.0 RN Ingushneft 5.3 0.18 0.0 47.5 Polar Lights 35.3 1.18 0.0 336.3





YTD

RN-Severnaya Neft (Northern Oil) 244.5 8.15 (0.1) 2,335.9 Rosneft-Dagneft 12.4 0.41 0.0 109.6 RN-Krasnodarneftegaz 75.6 2.52 0.0 675.7 Rosneft-Malaninskaya gruppa 4.8 0.16 0.0 42.6 Rospan International 62.0 2.07 1.9 181.4 RN-Purneftegaz 519.2 17.31 (0.3) 4,851.7 RN-Sakhalinmorneftegaz 117.9 3.93 0.0 1,081.4 RN-Stavropolneftegaz 67.8 2.26 0.1 614.8 Samaraneftegaz 914.8 30.49 0.0 8,167.9 Udmurtneft 530.9 17.70 0.0 4,832.4 Vankorneft 1,781.3 59.38 (0.0) 15,967.4 Vostsibneftegaz 0.0 0.00 0.0 49.5 RN-Yuganskneftegaz 5,423.1 180.77 0.2 49,529.9 Yupiter-A 1.5 0.05 (0.0) 4.7 Buguruslanneft 134.6 4.49 (0.1) 420.9

Ermakovskoye 63.3 2.11 (0.0) 194.5 Kalchinskoye 41.5 1.38 (0.0) 128.8 Malosiktorskoye 0.0 0.00 0.0 0.0 Nizhnevartovsk OGPC 0.0 0.00 0.0 0.0 Novosibirskneftegaz 202.5 6.75 0.0 621.4 Orenburgneft 1,520.5 50.68 0.2 4,646.1 Samotlorneftegaz 1,351.2 45.04 (0.2) 4,158.3 Severnoyeneftegaz (up to 12/09) 0.0 0.00 0.0 0.0 Severo-Varyeganskoye 36.1 1.20 0.0 110.0 Suzun 0.0 0.00 0.0 0.0 TNK-Nizhnevartovsk 479.8 15.99 0.1 1,469.9 TNK-Nyagan 527.5 17.58 0.1 1,612.3 TNK-Uvat 730.7 24.36 0.2 2,223.3 Tyumenneftegaz 11.6 0.39 (0.0) 35.7 Vanyeganneft 113.5 3.78 (0.0) 347.9 Varyeganneftegaz 142.4 4.75 0.1 430.7 Verkhnechonskneftegaz 639.0 21.30 0.0 1,953.4 Yugraneft Corp. 25.5 0.85 (0.0) 80.2 Total for Rosneft 15,858.5 528.62 0.4 107,654.8 RussNeft: Aganneftegazgeologiya 99.6 3.32 0.2 673.2 AKI-OTYR 145.1 4.84 0.2 1,186.7 Archneftegeologiya 0.0 0.00 0.0 0.0 Belkamneft 180.6 6.02 (0.0) 1,661.1 Belye Nochi (White Nights) 130.9 4.36 (0.1) 1,350.1 Chernogorskoye 10.0 0.33 (0.0) 91.6 Duklinskoye 0.0 0.00 0.0 0.0 Fedyushkinskoye 0.0 0.00 0.0 0.0 Goloil 11.9 0.40 (0.0) 115.8 KNNK 0.4 0.01 0.0 3.7

Grushovoye 0.0 0.00 0.0 0.0 Mokhtikneft 26.5 0.88 (0.1) 258.3 Nafta-Ulyanovsk 0.0 0.00 0.0 0.0 Nefterazvedka 0.4 0.01 (0.0) 3.9 Novo-Aganskoye 6.3 0.21 0.0 53.5

STATISTICS/September(continued from p.50)



STATISTICS/September



YTD

Okunevskoye 2.7 0.09 0.1 10.6 Penzaneft NGDU 0.0 0.00 0.0 0.0 Poselkovoye 0.0 0.00 0.0 0.0 Regionalnyi neftyanoi konsortsyum 94.1 3.14 (0.1) 896.9 RNK 1.9 0.06 (0.0) 17.8 Saratov-Bureniye 3.0 0.10 0.0 25.7 Saratovneftegaz 65.0 2.17 0.0 626.3 Sobolinoye 0.0 0.00 0.0 0.0 Stolbovoye 0.0 0.00 0.0 0.0 Tomskaya neft 75.9 2.53 (0.1) 762.2 Udmurt National Oil Company 9.0 0.30 (0.0) 82.9 Udmurt Oil Company 46.4 1.55 0.0 286.7 Udmurtgeologiya 10.3 0.34 (0.0) 93.1 Ulyanovskneft 68.3 2.28 (0.2) 621.5 Uralskaya Neft (Ural Oil) 2.5 0.08 (0.0) 23.2 UTEK-Ryabovskoye 13.8 0.46 (0.0) 154.0 Valyuninskoye 1.7 0.06 (0.0) 16.2 Varyeganneft 86.4 2.88 (0.1) 814.5 Zapadno-Malobalykskoye 52.1 1.74 (0.0) 485.4 Total for RussNeft 1,144.8 38.16 (0.2) 10,314.9 Slavneft: Obneftegazgeologiya 306.4 10.21 0.0 2,876.1 Obneftegeologiya 37.4 1.25 (0.0) 343.3 Slavneft 52.9 1.76 0.0 462.4 Slavneft-Krasnoyarskneftegaz 3.6 0.12 (0.0) 18.3 Slavneft-Megionneftegaz 745.7 24.86 (0.1) 6,872.4 Slavneft-Megionneftegazgeologiya 39.0 1.30 (0.0) 386.5 Slavneft-Nizhnevartovsk 175.6 5.85 (0.1) 1,610.5 Sobol 11.2 0.37 0.0 101.3 Total for Slavneft 1,371.8 45.73 (0.1) 12,670.8 Surgutneftegaz: Surgutneftegaz (UFO) 4,452.3 148.41 (0.1) 40,566.1 Surgutneftegaz (Yakutiya) 596.7 19.89 (0.2) 5,371.3 Total for Surgutneftegaz 5,049.0 168.30 (0.3) 45,937.5 Tatneft: Ilekneft 1.3 0.04 (0.0) 11.8 Tatneft 2,148.8 71.63 0.0 19,518.3 Tatneft-Samara 24.3 0.81 (0.0) 222.1 Tatneft-Severny 0.5 0.02 0.0 4.3 Total for Tatneft 2,174.9 72.50 0.0 19,756.6 TNK-BP Holding (up to 07/13): Vanyeganneft 0.0 0.00 0.0 649.5 Varyeganneftegaz 0.0 0.00 0.0 839.1 TNK-Nizhnevartovsk 0.0 0.00 0.0 2,914.1 Buguruslanneft 0.0 0.00 0.0 833.8 Verkhnechonskneftegaz 0.0 0.00 0.0 3,769.4 Ermakovskoye 0.0 0.00 0.0 399.2 Kalchinskoye 0.0 0.00 0.0 263.8 Novosibirskneftegaz 0.0 0.00 0.0 1,259.4 TNK-Nyagan 0.0 0.00 0.0 3,205.1 Orenburgneft 0.0 0.00 0.0 9,078.8




GAS PRODUCTION N SEPTEMBER 2013 (mln cu m)


YTD

Vertically Integrated Companies:Bashneft:Bashmineral 0.0 0.0 0.0 0.0 Bashneft 55.4 1.8 0.0 347.5 Geoneft 0.0 0.0 0.0 1.3 Zirgan 0.0 0.0 0.0 0.0 Total Bashneft 55.4 1.8 0.0 348.8 Gazprom neft: Archinskoye 0.4 0.0 0.0 4.2 CNT 2.1 0.1 0.0 9.6 Gazprom neft 6.2 0.2 0.1 38.9 Gazprom Neft Novy Port 0.6 0.0 0.0 2.5 Gazprom neft Orenburg 134.9 4.5 (0.1) 1,065.1 Gazpromneft-Khantos 3.4 0.1 0.0 29.7 Gazpromneft-NNG 557.7 18.6 2.4 4,747.3 Gazpromneft-Vostok 5.7 0.2 0.1 43.9 MAGMA 4.1 0.1 0.0 35.5 Meretoyakhaneftegaz 0.0 0.0 0.0 0.0 Sibneft-Yugra 20.7 0.7 0.0 92.3 YuUNG 11.7 0.4 0.0 101.7 Zapolyarneft 235.7 7.9 0.3 2,060.1 Zhivoy Istok 0.2 0.0 0.0 0.3 Total Gazprom neft 983.2 32.8 2.8 8,231.0




YTD

Samotlorneftegaz 0.0 0.00 0.0 8,264.8 Severo-Varyeganskoye 0.0 0.00 0.0 217.3 TNK-Uvat 0.0 0.00 0.0 3,826.1 Tyumenneftegaz 0.0 0.00 0.0 46.2 Yugraneft Corp. 0.0 0.00 0.0 173.8 Total TNK-BP Holding 0.0 0.00 0.0 35,740.4 Total for Vertically Integrated Companies

36,780.4 1,226.01 1.3 331,815.6

Non-Specialized State-Controlled Companies:

Gazprom: Total for Gazprom 1,304.5 43.48 (0.3) 12,056.5 Total for Non-Specialized State-Controlled Companies

1,304.5 43.48 (0.3) 12,056.5

Other Oil-Producing Companies: NOVATEK: 350.1 11.67 0.5 3,250.5 Total for NOVATEK 350.1 11.67 0.5 3,250.5 Total for Other Oil-Producing Companies:

3,539.8 117.99 1.2 32,767.7

Total PSA Operators 1,107.4 36.91 (1.3) 10,148.3 Total 43,082.1 1,436.07 1.4 390,038.7 Note: All figures are preliminary. Source: Russian Ministry of Energy



GAS PRODUCTION IN SEPTEMBER 2013 (mln cu m)


YTD

LUKOIL: Kama-oil 0.5 0.0 0.0 4.8 LUKOIL-AIK 16.9 0.6 (0.0) 159.5 LUKOIL-KMN 1.9 0.1 (0.0) 17.2 LUKOIL-Komi 97.5 3.3 0.3 816.5 LUKOIL-Nizhnevolzhskneft 114.3 3.8 0.1 816.5 LUKOIL-Perm 101.1 3.4 0.4 911.9 LUKOIL-Zapadnaya Sibir 1,081.0 36.0 0.0 9,856.0 Brendan 0.0 0.0 0.0 0.0 Kondukchaneft 0.0 0.0 (0.0) 0.2 Naryanmarneftegaz 16.0 0.5 0.0 159.4 NMNG-MNA 0.4 0.0 0.0 1.5 PermTOTINeft 0.2 0.0 0.0 1.6 RITEK 49.4 1.6 0.0 500.6 R-Vnedreniye 0.0 0.0 0.0 0.0 Samara-Nafta 1.5 0.1 0.0 7.3 Tursunt 0.4 0.0 (0.0) 4.0 UralOil 0.0 0.0 0.0 0.0 Volgodeminoil 11.7 0.4 0.0 77.9 Total for LUKOIL 1,492.8 49.8 0.9 13,465.4 Rosneft: 0.0 0.0 Dagneftegaz 2.2 0.1 0.0 19.7 Grozneftegaz 11.2 0.4 0.1 127.3 Kynsko-Chaselsky Neftegas 0.0 0.0 0.0 0.0 RN Ingushneft 0.7 0.0 0.0 4.3 Polar Lights 2.3 0.1 0.0 22.7 RN-Severnaya Neft (Northern Oil) 20.3 0.7 (0.0) 194.4 Rosneft-Dagneft 24.8 0.8 (0.0) 218.4 Rospan International 313.6 10.5 1.6 913.0 RN-Krasnodarneftegaz 243.1 8.1 0.4 2,208.0 RN-Purneftegaz 350.5 11.7 0.3 3,105.8 RN-Sakhalinmorneftegaz 28.2 0.9 0.1 330.3 RN-Stavropolneftegaz 3.7 0.1 (0.1) 59.3 Samaraneftegaz 42.4 1.4 0.1 371.1 Udmurtneft 1.1 0.0 0.0 8.7 Vankorneft 40.6 1.4 0.2 364.3 Vostsibneftegaz 0.0 0.0 0.0 1.4 Yuganskneftegaz 331.5 11.1 0.4 2,715.2 Yupiter-A 0.0 0.0 (0.1) 0.1 Buguruslanneft 1.1 0.0 (0.0) 3.5 Ermakovskoye 3.5 0.1 0.0 9.6 Kalchinskoye 0.6 0.0 (0.0) 2.4 Nizhnevartovsk OGPC 19.5 0.7 0.1 55.3 Novosibirskneftegaz (up to 12/09) 0.0 0.0 0.0 0.0 Orenburgneft 202.0 6.7 (1.7) 706.5 Samotlorneftegaz 425.7 14.2 1.2 1,254.6 Severnoyeneftegaz 0.0 0.0 0.0 0.0 Severo-Varyeganskoye 31.1 1.0 (0.0) 96.6 TNK-Nizhnevartovsk 62.0 2.1 0.1 191.6 TNK-Nyagan 129.2 4.3 0.2 383.3 TNK-Uvat 6.3 0.2 0.0 18.5






YTD

Tyumenneftegaz 0.0 0.0 0.0 0.0 Vanyeganneft 88.0 2.9 0.4 261.6 Varyeganneftegaz 118.9 4.0 1.0 316.8 Verkhnechonskneftegaz 8.2 0.3 0.0 24.5 Yugraneft Corp. 2.7 0.1 (0.0) 8.6 Total for Rosneft 2,515.1 83.8 4.3 13,997.6 RussNeft: Aganneftegazgeologiya 10.2 0.3 0.0 18.9 AKI-OTYR 9.1 0.3 0.0 60.7 Archneftegeologiya 0.0 0.0 0.0 0.0 Belkamneft 3.5 0.1 0.0 28.2 Belye Nochi (White Nights) 61.2 2.0 0.2 314.1

Chernogorskoye 0.7 0.0 (0.0) 6.2 Duklinskoye 0.0 0.0 0.0 0.0 Fedyushkinskoye 0.0 0.0 0.0 0.0 Goloil 0.9 0.0 0.0 6.1 Grushovoye 0.0 0.0 0.0 0.0 Mokhtikneft 1.4 0.0 (0.0) 12.3 KKNK 0.0 0.0 0.0 0.0 Nafta-Ulyanovsk 0.0 0.0 0.0 0.0 Nefterazvedka 0.0 0.0 0.0 0.0 Novo-Aganskoye 0.8 0.0 0.0 5.9 Okunevskoye 0.0 0.0 0.0 0.0 Penzaneft NGDU 0.0 0.0 0.0 0.0 Poselkovoye 0.0 0.0 0.0 0.0 Regionalnyi neftyanoi konsortsyum 1.7 0.1 0.0 11.2 RNK 0.0 0.0 0.0 0.3 Saratov-Bureniye 2.4 0.1 0.0 22.4 Saratovneftegaz 31.9 1.1 0.1 296.6 Sobolinoye 0.0 0.0 0.0 0.0 Stolbovoye 0.0 0.0 0.0 0.0 Tomskaya neft 7.4 0.2 (0.0) 22.5 Udmurt National Oil Company 0.1 0.0 0.0 0.7 Udmurt Oil Company 0.4 0.0 0.0 1.3 Udmurtgeologiya 0.1 0.0 0.0 0.5 Ulyanovskneft 0.6 0.0 0.0 4.8 Uralskaya Neft (Ural Oil) 0.9 0.0 0.0 1.2 UTEK-Ryabovskoye 0.3 0.0 0.0 2.0 Valyuninskoye 0.1 0.0 0.0 0.1 Varyeganneft 44.8 1.5 (0.1) 410.7 Zapadno-Malobalykskoye 1.7 0.1 (0.0) 15.7 Total for RussNeft 180.3 6.0 0.2 1,242.4 Slavneft: Obneftegazgeologiya 5.9 0.2 0.0 54.7 Obneftegeologiya 0.2 0.0 0.0 1.5 Slavneft 0.3 0.0 0.0 3.6 Slavneft-Krasnoyarskneftegaz 0.0 0.0 0.0 0.2 Slavneft-Megionneftegaz 60.6 2.0 0.3 529.0 Slavneft-Megionneftegazgeologiya 0.7 0.0 0.0 6.4







YTD

Slavneft-Nizhnevartovsk 0.8 0.0 0.0 9.2 Sobol 1.0 0.0 0.0 8.2 Total for Slavneft 69.4 2.3 0.3 612.8 Surgutneftegaz: Surgutneftegaz (UFO) 902.6 30.1 (0.6) 8,573.9 Surgutneftegaz (Yakutiya) 56.4 1.9 (0.0) 509.5 Total for Surgutneftegaz 959.0 32.0 (0.6) 9,083.4 Tatneft: Ilekneft 0.0 0.0 0.0 0.3 Tatneft 69.8 2.3 (0.2) 659.9 Tatneft-Samara 0.0 0.0 0.0 2.6 Tatneft-Severny 0.0 0.0 0.0 0.0

Total for Tatneft 69.8 2.3 (0.2) 662.7 TNK-BP Holding: Vanyeganneft 0.0 0.0 0.0 6,697.8 Varyeganneftegaz 0.0 0.0 0.0 548.9 TNK-Nizhnevartovsk 0.0 0.0 0.0 767.3 Buguruslanneft 0.0 0.0 0.0 379.9 Verkhnechonskneftegaz 0.0 0.0 0.0 7.5 Ermakovskoye 0.0 0.0 0.0 43.9 Kalchinskoye 0.0 0.0 0.0 19.6 Novosibirskneftegaz 0.0 0.0 0.0 8.6 TNK-Nyagan 0.0 0.0 0.0 113.2 Orenburgneft 0.0 0.0 0.0 674.7 Samotlorneftegaz 0.0 0.0 0.0 1,365.9 Severo-Varyeganskoye 0.0 0.0 0.0 2,527.6 TNK-Uvat 0.0 0.0 0.0 182.6 Tyumenneftegaz 0.0 0.0 0.0 39.8 Yugraneft Corp. 0.0 0.0 0.0 18.3 Total TNK-BP Holding 0.0 0.0 0.0 6,697.8 Total for Vertically Integrated Companies

6,325.1 210.8 7.9 54,342.0

State-Controlled Companies: Gazprom: Total for Gazprom 37,845.0 1261.5 206.7 341,845.5 Total for State-Controlled Companies

37,845.0 1261.5 206.7 341,845.5

Other Gas-Producing Companies: NOVATEK: Total for NOVATEK 4,155.1 138.5 11.5 39,157.4 Total for Other Oil and Gas Producing Companies:

2,681.5 89.4 7.3 26,840.4

PSA Operators: Total PSA Operators 2,199.2 73.3 2.4 20,169.0 Total 53,205.8 1773.5 235.7 482,354.3 Note: All figures are preliminary. Source: Russian Ministry of Energy



OIL REFINING, JANUARY-SEPTEMBER 2013 (thousand tons)Company/Refinery Primary Oil Refining Oil Products

Gasoline Diesel Fuel Residual Fuel Jet FuelAlliance Group: Khabarovsk Refinery 3,271.0 333.0 209.9 1,130.3 193.9 Total for Alliance Group 3,271.0 333.0 209.9 1,130.3 193.9 Afipsk Refinery 3,937.4 0.0 1,468.8 1,741.2 0.0 Bashneft: Novo-Ufimsk Refinery 4,968.7 1,410.3 1,587.0 547.4 129.5 Ufaneftekhim 6,383.5 1,006.2 2,504.8 376.7 0.0 Ufimsk Refinery 4,700.7 1,094.8 1,590.4 1,353.4 0.0 Total for Bashneft 16,052.9 3,511.3 5,682.2 2,277.5 129.5 Gazprom 4,151.1 1,739.4 1,128.4 252.2 112.6 Gazprom neft: Omsk Refinery 15,269.0 3,422.8 4,807.8 1,267.5 1,178.2 Moscow Refinery 8,437.6 1,849.4 1,603.8 2,187.6 526.5 Total for Gazprom neft 23,706.6 5,272.2 6,411.6 3,455.1 1,704.7 Gazprom neftekhim Salavat 5,511.1 566.7 1,915.3 974.8 0.0 KrasnodarEcoNeft 1,875.9 0.0 558.3 850.6 94.1 LUKOIL: Nizhegorodnefteorgsintez 12,826.4 2,345.6 3,490.8 4,481.0 525.8 Permnefteorgsintez 9,496.0 1,218.2 2,850.4 1,473.4 607.8 Ukhtaneftepereeabotka 2,984.1 315.7 795.5 1,220.3 3.1 Volgogradneftepererabotka 8,347.6 1,226.8 2,328.8 851.7 746.4 Total for LUKOIL 33,654.1 5,106.3 9,465.5 8,026.4 1,883.1 Novoshakhtinsk Nefteprodukt Refinery 1,873.9 0.0 0.0 1,020.5 0.0 Rosneft: Achinsk Refinery 5,353.6 877.8 1,473.2 1,991.2 157.6 Angarsk Petrochemical Company 7,649.5 972.0 1,921.5 2,076.7 468.1 Komsomolsk Refinery 5,105.5 354.7 1,374.4 2,022.7 191.6 Novo-Kuibyshevsk Refinery 5,982.6 673.7 1,626.5 1,630.7 254.2 Samara Refinery 5,072.5 718.1 1,781.7 1,981.2 0.0 Syzran Refinery 5,281.2 815.2 1,328.2 1,709.8 182.5 Tuapse Refinery 3,849.7 0.0 1,238.3 1,730.1 0.0 Novo-Kuibyshevsk Lubricant Plant 0.0 0.0 0.0 14.5 0.0 Saratov Refinery 5,246.5 800.7 1,459.8 1,706.4 0.0 Ryazan Refinery 13,050.0 2,527.8 3,141.4 4,383.6 851.2 Total for Rosneft 56,591.1 7,740.0 15,345.0 19,246.9 2,105.2 Orsknefteorgsintez 4,410.7 630.6 1,312.9 1,317.2 241.8 Slavneft: Yaroslavl Refinery 208.6 0.0 0.0 77.2 0.0 Yaroslavnefteorgsintez 11,067.4 1,778.1 3,166.6 3,636.3 706.2 Total for Slavneft 11,276.0 1,778.1 3,166.6 3,713.5 706.2 Surgutneftegaz: Kirishinefteorgsintez 14,671.4 1,601.0 3,729.1 6,372.1 542.0 Total for Surgutneftegaz 14,671.4 1,601.0 3,729.1 6,372.1 542.0 TAIF-NK (Niznekamsk Refinery) 6,108.9 419.5 1,486.1 1,491.2 20.8 TANECO 5,584.8 0.0 0.0 1,390.9 0.0 Yaysky Refinery 453.3 0.0 62.9 180.2 0.0 Antipinsky Refinery 2,884.6 0.0 450.4 1,339.0 0.0 Mariysky Refinery 447.1 0.0 130.6 103.7 1.5 Total for Companies and Refineries 196,461.9 28,698.1 52,523.6 54,883.3 7,735.4

Total for Mini-plant 6,559.1 185.8 1,269.8 2,029.3 111.5 Total 203,021.0 28,883.9 53,793.4 56,912.6 7,846.9 Note: All figures are preliminary. Source: Russian Ministry of Energy




OIL EXPORT FROM RUSSIA, JANUARY-SEPTEMBER 2013 (thousand tons)

Company Seaports Oil pipelines YTDNovo-

rossiyskPrimorsk Kozmino Ust-Luga Druzhba

PipelineESPO

(China)CPC

Far abroad export and transit via Transneft by the directions

28,279.3 41,032.1 15,994.5 16,987.3 38,519.8 11,627.3 1,488.8 153,929.1

Vertically Integrated Companies:Bashneft 1,216.4 1,788.7 3,005.1Gazprom neft 4,527.1 1,430.5 5,957.6LUKOIL 11,660.1 3,564.2 0.0 15,224.3Rosneft 29,869.4 12,964.2 11,627.3 619.7 55,080.6RussNeft 2,506.8 1,237.6 3,744.4Surgutneftegaz 15,900.6 5,760.0 21,660.6Tatneft 4,826.1 3,919.7 8,745.8TNK-BP Holding 8,359.7 5,321.5 869.1 14,550.3Total for Vertically Integrated Companies 78,866.2 35,986.4 11,627.3 1,488.8 127,968.7State Controlled Companies:Gazprom 456.0 456.0NOVATEK 163.0 163.0Other Oil-Producing and Exporting Companies

6,613.9 1,161.2 7,775.1

PSA Operators 1,131.3 1,131.3Total export for Russian Federation 87,067.4 37,310.6 11,627.3 1,488.8 137,494.1Kazakhstan's transit via Transneft 13,862.4 13,862.4Azerbaijan's transit via Transneft 1,327.5 1,327.5Turkmeniya's transit via Transneft 36.0 36.0Belarus 1,209.4 1,209.4Far abroad transit via Transneft 15,225.9 1,209.4 16,435.3Far abroad export and transit via Transneft 102,293.3 38,520.0 11,627.3 1,488.8 153,929.4Export to far abroad passing Transneft 16,999.8Far abroad export and transit 170,929.2Far abroad export from Russia 154,493.8Far abroad transit 16,435.2CIS countries export 21,470.9Export to Kazakhstan 4,996.0Export to Kazakhstan via Transneft 4,965.8Export to Kazakhstan passing Transneft 30.2Export to Belarus 16,475.0Export to Belarus via Transneft 15,485.6Export to Belarus passing Transneft 989.4Export to Ukraine 0.0Export to Ukraine via Transneft 0.0Total export and transit 192,400.1Total export from Russia 175,964.9Total transit 16,435.2

Note: All figures are preliminary; nonreconcilable totals reflect incomplete data supplied by the RF Ministry of Energy




STATISTICS/October

OIL PRODUCTION IN OCTOBER 2013 (thousand tons)

Company October Daily Average +/- Daily . October Vs September

YTD

Vertically Integrated Companies:Bashneft:Bashmineral 0.0 0.00 0.0 1.2 Bashneft 1,405.0 45.32 (0.1) 13,198.7 Geoneft 0.0 0.00 0.0 41.7 Bashneft-Polyus 0.0 0.00 0.0 63.0 Total for Bashneft 1,405.0 45.32 (0.1) 13,304.6 Gazprom neft: Archinskoye 18.0 0.58 0.0 160.8 CNT 47.6 1.54 0.4 234.9 Gazprom neft 14.8 0.48 (2.6) 826.3 Gazprom neft Orenburg 104.1 3.36 0.1 836.2 Gazpromneft-Khantos 102.9 3.32 0.1 916.4 Gazpromneft-NNG 930.6 30.02 1.6 8,874.5 Gazpromneft-Vostok 122.1 3.94 1.1 832.4 Gazprmneft Novy Port 0.0 0.00 (0.0) 15.9 MAGMA 43.3 1.40 0.0 407.3 Meretoyakhaneftegaz 0.2 0.01 (0.0) 1.0 Sibneft-Yugra 1,028.8 33.19 (0.1) 9,997.9 YuUNG 23.6 0.76 (0.0) 221.4 Zapolyarneft 357.7 11.54 0.1 3,320.2 Zhivoy Istok 0.2 0.01 0.0 1.8 Total Gazprom neft 2,793.8 90.12 0.8 26,646.8 LUKOIL: Kama-oil 15.3 0.49 0.0 131.4 LUKOIL-AIK 198.9 6.42 (0.0) 2,000.2 LUKOIL-KMN 77.0 2.48 (0.0) 783.8 LUKOIL-Komi 1,201.6 38.76 (0.2) 11,549.2 LUKOIL-Nizhnevolzhskneft 112.5 3.63 (0.2) 1,136.1 LUKOIL-Perm 1,139.0 36.74 0.1 11,060.0 LUKOIL-Zapadnaya Sibir 3,787.0 122.16 (0.4) 36,675.9 Brendan 0.0 0.00 (0.1) 16.3 Kondukchaneft 0.0 0.00 (0.1) 12.3 Mushakneft 0.0 0.00 0.0 0.3 Naryanmarneftegaz 91.4 2.95 (0.1) 1,032.5 NMNG-MNA 11.4 0.37 0.0 73.4 PermTOTINeft 16.5 0.53 (0.0) 162.2 RITEK 419.6 13.54 (0.1) 4,893.0 R-Vnedreniye 0.0 0.00 0.0 0.0 Samara-Nafta 228.2 7.36 0.2 1,308.8 Tursunt 9.8 0.32 (0.0) 95.1 UralOil 0.0 0.00 0.0 0.0 Volgodeminoil 45.8 1.48 (0.0) 411.4 Total for LUKOIL 7,353.9 237.22 (0.7) 71,341.9 Rosneft: Dagneftegaz 2.2 0.07 (0.0) 21.9 Grozneftegaz 39.9 1.29 (0.0) 412.9 RN Ingushneft 5.7 0.18 0.0 53.2 Polar Lights 36.1 1.16 (0.0) 372.4





YTD

RN-Severnaya Neft (Northern Oil) 252.4 8.14 (0.0) 2,588.3 Rosneft-Dagneft 13.1 0.42 0.0 122.7 RN-Krasnodarneftegaz 78.3 2.53 0.0 754.0 Rosneft-Malaninskaya gruppa 5.5 0.18 0.0 48.1 Rospan International 64.8 2.09 0.0 246.2 RN-Purneftegaz 540.6 17.44 0.1 5,392.3 RN-Sakhalinmorneftegaz 116.6 3.76 (0.2) 1,198.0 RN-Stavropolneftegaz 75.3 2.43 0.2 690.1 Samaraneftegaz 941.9 30.38 (0.1) 9,109.8 Udmurtneft 547.0 17.65 (0.1) 5,379.4 Vankorneft 1,840.7 59.38 0.0 17,808.1 Vostsibneftegaz 0.0 0.00 0.0 49.5 RN-Yuganskneftegaz 5,604.2 180.78 0.0 55,134.1 Yupiter-A 1.4 0.05 (0.0) 6.1 Buguruslanneft 140.3 4.53 0.0 561.2

Ermakovskoye 64.9 2.09 (0.0) 259.4 Kalchinskoye 42.6 1.37 (0.0) 171.4 Malosiktorskoye 0.0 0.00 0.0 0.0 Nizhnevartovsk OGPC 0.0 0.00 0.0 0.0 Novosibirskneftegaz 208.3 6.72 (0.0) 829.7 Orenburgneft 1,560.2 50.33 (0.4) 6,206.3 Samotlorneftegaz 1,398.9 45.13 0.1 5,557.2 Severnoyeneftegaz (up to 12/09) 0.0 0.00 0.0 0.0 Severo-Varyeganskoye 37.1 1.20 (0.0) 147.1 Suzun 0.0 0.00 0.0 0.0 TNK-Nizhnevartovsk 494.3 15.95 (0.0) 1,964.2 TNK-Nyagan 543.5 17.53 (0.1) 2,155.8 TNK-Uvat 763.8 24.64 0.3 2,987.1 Tyumenneftegaz 4.2 0.14 (0.3) 39.9 Vanyeganneft 119.8 3.86 0.1 467.7 Varyeganneftegaz 148.9 4.80 0.1 579.6 Verkhnechonskneftegaz 660.4 21.30 0.0 2,613.8 Yugraneft Corp. 26.7 0.86 0.0 106.9 Total for Rosneft 16,379.8 528.38 (0.2) 124,034.6 RussNeft: Aganneftegazgeologiya 114.8 3.70 0.4 788.0 AKI-OTYR 150.3 4.85 0.0 1,337.0 Archneftegeologiya 0.0 0.00 0.0 0.0 Belkamneft 0.0 0.00 (6.0) 1,661.1 Belye Nochi (White Nights) 127.5 4.11 (0.3) 1,477.6 Chernogorskoye 10.3 0.33 (0.0) 101.9 Duklinskoye 0.0 0.00 0.0 0.0 Fedyushkinskoye 0.0 0.00 0.0 0.0 Goloil 12.1 0.39 (0.0) 127.9 KNNK 0.0 0.00 (0.0) 3.7

Grushovoye 0.0 0.00 0.0 0.0 Mokhtikneft 26.1 0.84 (0.0) 284.4 Nafta-Ulyanovsk 0.0 0.00 0.0 0.0 Nefterazvedka 0.5 0.02 0.0 4.4 Novo-Aganskoye 6.1 0.20 (0.0) 59.6

STATISTICS/October(continued from p.59)



STATISTICS/October



YTD

Okunevskoye 0.0 0.00 (0.1) 10.6 Penzaneft NGDU 0.0 0.00 0.0 0.0 Poselkovoye 0.0 0.00 0.0 0.0 Regionalnyi neftyanoi konsortsyum 0.0 0.00 (3.1) 896.9 RNK 0.0 0.00 (0.1) 17.8 Saratov-Bureniye 3.1 0.10 0.0 28.8 Saratovneftegaz 65.8 2.12 (0.0) 692.1 Sobolinoye 0.0 0.00 0.0 0.0 Sredbe-Vasyuganskoye 1.1 0.04 0.0 1.1 Stolbovoye 0.0 0.00 0.0 0.0 Tomskaya neft 78.8 2.54 0.0 841.0 Udmurt National Oil Company 0.0 0.00 (0.3) 82.9 Udmurt Oil Company 0.0 0.00 (1.5) 286.7 Udmurtgeologiya 0.0 0.00 (0.3) 93.1 Ulyanovskneft 71.3 2.30 0.0 692.8 Uralskaya Neft (Ural Oil) 0.0 0.00 (0.1) 23.2 UTEK-Ryabovskoye 0.0 0.00 (0.5) 154.0 Valyuninskoye 1.8 0.06 0.0 18.0 Varyeganneft 88.7 2.86 (0.0) 903.2 Zapadno-Malobalykskoye 0.0 0.00 (1.7) 485.4 Total for RussNeft 758.2 24.46 (13.7) 11,073.1 Slavneft: Obneftegazgeologiya 313.4 10.11 (0.1) 3,189.5 Obneftegeologiya 38.6 1.25 (0.0) 381.9 Slavneft 51.3 1.65 (0.1) 513.7 Slavneft-Krasnoyarskneftegaz 4.1 0.13 0.0 22.4 Slavneft-Megionneftegaz 764.4 24.66 (0.2) 7,636.8 Slavneft-Megionneftegazgeologiya 38.6 1.25 (0.1) 425.1 Slavneft-Nizhnevartovsk 186.0 6.00 0.1 1,796.5 Sobol 11.1 0.36 (0.0) 112.4 Total for Slavneft 1,407.5 45.40 (0.3) 14,078.3 Surgutneftegaz: Surgutneftegaz (UFO) 4,605.0 148.55 0.1 45,171.1 Surgutneftegaz (Yakutiya) 619.0 19.97 0.1 5,990.3 Total for Surgutneftegaz 5,224.0 168.52 0.2 51,161.5 Tatneft: Ilekneft 1.0 0.03 (0.0) 12.8 Tatneft 2,219.6 71.60 (0.0) 21,737.9 Tatneft-Samara 23.6 0.76 (0.0) 245.7 Tatneft-Severny 0.5 0.02 (0.0) 4.8 Total for Tatneft 2,244.8 72.41 (0.1) 22,001.4 TNK-BP Holding (up to 07/13): Vanyeganneft 0.0 0.00 0.0 649.5 Varyeganneftegaz 0.0 0.00 0.0 839.1 TNK-Nizhnevartovsk 0.0 0.00 0.0 2,914.1 Buguruslanneft 0.0 0.00 0.0 833.8 Verkhnechonskneftegaz 0.0 0.00 0.0 3,769.4 Ermakovskoye 0.0 0.00 0.0 399.2 Kalchinskoye 0.0 0.00 0.0 263.8 Novosibirskneftegaz 0.0 0.00 0.0 1,259.4 TNK-Nyagan 0.0 0.00 0.0 3,205.1




GAS PRODUCTION iN OCTOBER 2013 (mln cu m)


YTD

Vertically Integrated Companies:Bashneft:Bashneft 62.9 2.1 0.3 394.2 Geoneft 0.0 0.0 0.0 1.3 Zirgan 0.0 0.0 0.0 0.0 Total Bashneft 62.9 2.1 0.3 395.5 Gazprom neft: Archinskoye 0.5 0.0 0.0 4.7 CNT 3.6 0.1 0.1 13.2 Gazprom neft 0.2 0.0 (0.1) 34.4 Gazprom Neft Novy Port 0.0 0.0 0.0 2.5 Gazprom neft Orenburg 138.7 4.6 0.0 1,203.7 Gazpromneft-Khantos 3.6 0.1 0.0 33.3 Gazpromneft-NNG 610.3 20.3 4.1 5,361.9 Gazpromneft-Vostok 7.4 0.2 0.1 51.2 MAGMA 4.2 0.1 0.0 39.7 Meretoyakhaneftegaz 0.0 0.0 0.0 0.0 Sibneft-Yugra 26.2 0.9 0.2 118.5 YuUNG 11.8 0.4 0.0 113.5 Zapolyarneft 234.9 7.8 0.3 2,295.0 Zhivoy Istok 0.2 0.0 0.0 0.3 Total Gazprom neft 1,041.3 34.7 4.8 9,271.9




YTD

Orenburgneft 0.0 0.00 0.0 9,078.8 Samotlorneftegaz 0.0 0.00 0.0 8,264.8 Severo-Varyeganskoye 0.0 0.00 0.0 217.3 TNK-Uvat 0.0 0.00 0.0 3,826.1 Tyumenneftegaz 0.0 0.00 0.0 46.2 Yugraneft Corp. 0.0 0.00 0.0 173.8 Total TNK-BP Holding 0.0 0.00 0.0 35,740.4 Total for Vertically Integrated Companies

37,566.8 1,211.83 (14.2) 369,382.4

Non-Specialized State-Controlled Companies:

Gazprom: Total for Gazprom 1,400.3 45.17 1.7 13,456.8 Total for Non-Specialized State-Controlled Companies

1,400.3 45.17 1.7 13,456.8

Other Oil-Producing Companies: NOVATEK: 359.3 11.59 (0.1) 3,609.8 Total for NOVATEK 359.3 11.59 (0.1) 3,609.8 Total for Other Oil-Producing Companies:

4,242.6 136.86 18.9 37,010.3

Total PSA Operators 1,204.0 38.84 1.9 11,352.3 Total 43,082.1 1,389.75 (46.3) 433,120.8 Note: All figures are preliminary. Source: Russian Ministry of Energy



GAS PRODUCTION IN OCTOBER 2013 (mln cu m)


YTD

LUKOIL: Kama-oil 0.5 0.0 0.0 5.3 LUKOIL-AIK 18.9 0.6 0.0 178.4 LUKOIL-KMN 2.3 0.1 0.0 19.4 LUKOIL-Komi 102.7 3.4 0.5 919.5 LUKOIL-Nizhnevolzhskneft 111.8 3.7 0.0 919.5 LUKOIL-Perm 118.2 3.9 0.9 1,030.1 LUKOIL-Zapadnaya Sibir 1,134.9 37.8 1.8 10,992.9 Kondukchaneft 0.0 0.0 (0.0) 0.2 Naryanmarneftegaz 18.9 0.6 0.1 178.3 NMNG-MNA 0.4 0.0 0.0 1.9 PermTOTINeft 0.3 0.0 0.0 1.9 RITEK 56.2 1.9 0.3 556.8 R-Vnedreniye 0.0 0.0 0.0 0.0 Samara-Nafta 1.5 0.1 0.0 8.7 Tursunt 0.5 0.0 0.0 4.4 UralOil 0.0 0.0 0.0 0.0 Volgodeminoil 11.9 0.4 0.0 90.1 Total for LUKOIL 1,578.9 52.6 3.8 15,046.9 Rosneft: 0.0 0.0 Dagneftegaz 2.3 0.1 0.0 22.0 Grozneftegaz 14.9 0.5 0.2 142.2 RN Ingushneft 0.8 0.0 0.0 4.7 Polar Lights 2.4 0.1 0.0 25.1 RN-Severnaya Neft (Northern Oil) 20.6 0.7 0.0 215.0 Rosneft-Dagneft 25.4 0.8 0.0 243.8 Rospan International 329.2 11.0 2.2 1,241.2 RN-Krasnodarneftegaz 284.7 9.5 1.8 2,494.8 RN-Purneftegaz 359.5 12.0 0.6 3,465.4 RN-Sakhalinmorneftegaz 32.3 1.1 0.2 362.6 RN-Stavropolneftegaz 7.5 0.3 0.0 66.9 Samaraneftegaz 43.0 1.4 0.1 414.1 Udmurtneft 1.1 0.0 0.0 9.8 Vankorneft 41.5 1.4 0.3 405.8 Vostsibneftegaz 0.0 0.0 0.0 1.4 Yuganskneftegaz 353.5 11.8 1.1 3,066.0 Yupiter-A 0.0 0.0 (0.1) 0.2 Buguruslanneft 1.5 0.1 0.0 5.0 Ermakovskoye 3.5 0.1 0.0 13.1 Kalchinskoye 0.8 0.0 0.0 3.2 Nizhnevartovsk OGPC 20.7 0.7 0.2 76.1 Novosibirskneftegaz (up to 12/09) 0.0 0.0 0.0 0.0 Orenburgneft 286.5 9.6 1.1 992.2 Samotlorneftegaz 444.4 14.8 1.9 1,699.1 Severnoyeneftegaz 0.0 0.0 0.0 0.0 Severo-Varyeganskoye 30.9 1.0 (0.0) 127.5 TNK-Nizhnevartovsk 62.3 2.1 0.1 253.8 TNK-Nyagan 133.3 4.4 0.3 516.7 TNK-Uvat 6.8 0.2 0.0 25.6






YTD

Tyumenneftegaz 0.0 0.0 0.0 0.0 Vanyeganneft 96.9 3.2 0.7 359.6 Varyeganneftegaz 120.8 4.0 1.1 437.7 Verkhnechonskneftegaz 8.8 0.3 0.0 33.2 Yugraneft Corp. 2.8 0.1 0.0 11.4 Total for Rosneft 2,738.8 91.3 11.8 16,735.2 RussNeft: Aganneftegazgeologiya 12.2 0.4 0.1 21.7 AKI-OTYR 9.5 0.3 0.0 69.1 Archneftegeologiya 0.0 0.0 0.0 0.0 Belkamneft 0.0 0.0 (0.1) 27.6 Belye Nochi (White Nights) 67.6 2.3 0.4 354.5

Chernogorskoye 0.7 0.0 (0.0) 6.9 Duklinskoye 0.0 0.0 0.0 0.0 Fedyushkinskoye 0.0 0.0 0.0 0.0 Goloil 0.8 0.0 (0.0) 6.8 Grushovoye 0.0 0.0 0.0 0.0 Mokhtikneft 1.4 0.0 (0.0) 13.8 Nafta-Ulyanovsk 0.0 0.0 0.0 0.0 Novo-Aganskoye 1.1 0.0 0.0 6.8 Penzaneft NGDU 0.0 0.0 0.0 0.0 Poselkovoye 0.0 0.0 0.0 0.0 Regionalnyi neftyanoi konsortsyum 0.0 0.0 (0.0) 10.8 RNK 0.0 0.0 0.0 0.3 Saratov-Bureniye 3.5 0.1 0.0 25.7 Saratovneftegaz 35.1 1.2 0.2 329.1 Sobolinoye 0.0 0.0 0.0 0.0 Stolbovoye 0.0 0.0 0.0 0.0 Tomskaya neft 7.6 0.3 (0.0) 25.0 Udmurt National Oil Company 0.0 0.0 (0.0) 0.7 Udmurt Oil Company 0.0 0.0 (0.0) 1.0 Udmurtgeologiya 0.0 0.0 (0.0) 0.5 Ulyanovskneft 0.6 0.0 0.0 5.3 Uralskaya Neft (Ural Oil) 0.0 0.0 0.0 0.3 UTEK-Ryabovskoye 0.0 0.0 (0.0) 2.0 Valyuninskoye 0.1 0.0 0.0 0.1 Varyeganneft 46.9 1.6 (0.1) 457.6 Zapadno-Malobalykskoye 0.0 0.0 (0.1) 15.7 Total for RussNeft 187.3 6.2 0.5 1,381.4 Slavneft: Obneftegazgeologiya 6.1 0.2 0.0 60.8 Obneftegeologiya 0.2 0.0 0.0 1.6 Slavneft 0.4 0.0 0.0 4.0 Slavneft-Krasnoyarskneftegaz 0.1 0.0 0.0 0.3 Slavneft-Megionneftegaz 61.0 2.0 0.3 590.0 Slavneft-Megionneftegazgeologiya 0.8 0.0 0.0 7.1 Slavneft-Nizhnevartovsk 1.0 0.0 0.0 10.3 Sobol 0.9 0.0 0.0 9.1 Total for Slavneft 70.4 2.3 0.3 683.1







YTD

Surgutneftegaz: Surgutneftegaz (UFO) 927.1 30.9 0.2 9,516.1 Surgutneftegaz (Yakutiya) 57.7 1.9 0.0 568.2 Total for Surgutneftegaz 984.8 32.8 0.2 10,084.3 Tatneft: Ilekneft 0.0 0.0 0.0 0.3 Tatneft 67.9 2.3 (0.2) 729.0 Tatneft-Samara 0.0 0.0 0.0 2.8 Tatneft-Severny 0.0 0.0 0.0 0.0

Total for Tatneft 67.9 2.3 (0.2) 732.1 TNK-BP Holding: Vanyeganneft 0.0 0.0 0.0 6,697.8 Varyeganneftegaz 0.0 0.0 0.0 548.9 TNK-Nizhnevartovsk 0.0 0.0 0.0 767.3 Buguruslanneft 0.0 0.0 0.0 379.9 Verkhnechonskneftegaz 0.0 0.0 0.0 7.5 Ermakovskoye 0.0 0.0 0.0 43.9 Kalchinskoye 0.0 0.0 0.0 19.6 Novosibirskneftegaz 0.0 0.0 0.0 8.6 TNK-Nyagan 0.0 0.0 0.0 113.2 Orenburgneft 0.0 0.0 0.0 674.7 Samotlorneftegaz 0.0 0.0 0.0 1,365.9 Severo-Varyeganskoye 0.0 0.0 0.0 2,527.6 TNK-Uvat 0.0 0.0 0.0 182.6 Tyumenneftegaz 0.0 0.0 0.0 39.8 Yugraneft Corp. 0.0 0.0 0.0 18.3 Total TNK-BP Holding 0.0 0.0 0.0 6,697.8 Total for Vertically Integrated Companies

6,732.3 224.4 21.4 61,028.3

State-Controlled Companies: Gazprom: Total for Gazprom 46,159.3 1538.6 483.9 387,997.4 Total for State-Controlled Companies

46,159.3 1538.6 483.9 387,997.4

Other Gas-Producing Companies: NOVATEK: Total for NOVATEK 4,592.3 153.1 26.0 43,819.5 Total for Other Oil and Gas Producing Companies:

3,053.0 101.8 19.7 30,062.3

PSA Operators: Total PSA Operators 2,162.8 72.1 1.2 22,335.6 Total 62,699.6 2090.0 552.2 545,243.1 Note: All figures are preliminary. Source: Russian Ministry of Energy



OIL REFINING, JANUARY-OCTOBER 2013 (thousand tons)Company/Refinery Primary Oil Refining Oil Products

Gasoline Diesel Fuel Residual Fuel Jet FuelAlliance Group: Khabarovsk Refinery 3,690.6 385.0 245.1 1,270.3 216.3 Total for Alliance Group 3,690.6 385.0 245.1 1,270.3 216.3 Afipsk Refinery 4,174.1 0.0 1,556.4 1,849.6 0.0 Bashneft: Novo-Ufimsk Refinery 5,459.9 1,562.1 1,786.8 584.1 162.0 Ufaneftekhim 7,214.0 1,139.3 2,778.1 422.8 0.0 Ufimsk Refinery 5,257.4 1,212.1 1,780.8 1,500.0 0.0 Total for Bashneft 17,931.3 3,913.5 6,345.7 2,506.9 162.0 Gazprom 4,704.5 1,974.1 1,278.1 286.1 128.0 Gazprom neft: Omsk Refinery 16,751.7 3,772.7 5,271.5 1,381.2 1,282.4 Moscow Refinery 9,192.0 2,041.4 1,763.1 2,353.6 550.5 Total for Gazprom neft 25,943.7 5,814.1 7,034.6 3,734.8 1,832.9 Gazprom neftekhim Salavat 5,911.9 626.9 2,041.3 1,044.1 0.0 KrasnodarEcoNeft 2,083.4 0.0 621.0 944.0 105.7 LUKOIL: Nizhegorodnefteorgsintez 14,303.2 2,643.9 3,869.3 4,963.9 597.1 Permnefteorgsintez 10,625.7 1,379.0 3,172.1 1,725.3 669.0 Ukhtaneftepereeabotka 3,327.0 354.7 874.2 1,352.0 4.9 Volgogradneftepererabotka 9,241.0 1,363.3 2,562.4 928.4 830.4 Total for LUKOIL 37,496.9 5,740.9 10,478.0 8,969.6 2,101.4 Novoshakhtinsk Nefteprodukt Refinery 2,104.0 0.0 0.0 1,146.6 0.0 Rosneft: Achinsk Refinery 6,046.7 997.8 1,661.2 2,262.6 172.8 Angarsk Petrochemical Company 8,325.1 1,036.5 2,119.1 2,272.0 490.3 Komsomolsk Refinery 5,795.6 395.8 1,575.3 2,272.2 217.9 Novo-Kuibyshevsk Refinery 6,678.4 749.7 1,809.6 1,810.8 288.3 Samara Refinery 5,704.2 813.1 2,007.7 2,220.1 0.0 Syzran Refinery 5,746.1 882.1 1,448.9 1,849.7 198.8 Tuapse Refinery 4,501.2 0.0 1,450.1 2,019.9 0.0 Novo-Kuibyshevsk Lubricant Plant 0.0 0.0 0.0 16.0 0.0 Saratov Refinery 5,268.0 809.3 1,460.8 1,717.5 0.0 Ryazan Refinery 14,408.2 2,804.2 3,413.3 4,838.4 942.9 Total for Rosneft 62,473.5 8,488.5 16,946.0 21,279.2 2,311.0 Orsknefteorgsintez 4,966.8 714.4 1,484.8 1,472.5 268.9 Slavneft: Yaroslavl Refinery 250.0 0.0 0.0 96.8 0.0 Yaroslavnefteorgsintez 12,412.7 2,001.2 3,571.3 4,068.6 784.3 Total for Slavneft 12,662.7 2,001.2 3,571.3 4,165.4 784.3 Surgutneftegaz: Kirishinefteorgsintez 16,420.3 1,792.4 4,140.6 6,996.1 600.0 Total for Surgutneftegaz 16,420.3 1,792.4 4,140.6 6,996.1 600.0 TAIF-NK (Niznekamsk Refinery) 6,767.7 468.9 1,628.1 1,670.0 27.3 TANECO 6,181.1 0.0 0.0 1,552.5 0.0 Yaysky Refinery 606.2 0.0 91.3 246.7 0.0 Antipinsky Refinery 3,222.8 0.0 524.4 1,498.7 0.0 Mariysky Refinery 447.1 0.0 0.0 103.7 1.5 Total for Companies and Refineries 217,788.6 31,919.9 57,986.7 60,736.8 8,539.3

Total for Mini-plant 7,506.9 209.3 1,435.0 2,374.4 128.3 Total 225,295.5 32,129.2 59,421.7 63,111.2 8,667.6 Note: All figures are preliminary. Source: Russian Ministry of Energy




OIL EXPORT FROM RUSSIA, JANUARY-OCTOBER 2013 (thousand tons)

Company Seaports Oil pipelines YTDNovo-

rossiyskPrimorsk Kozmino Ust-Luga Druzhba

PipelineESPO

(China)CPC

Far abroad export and transit via Transneft by the directions

31,422.5 45,957.4 17,694.1 19,367.5 42,920.2 13,028.3 1,688.7 172,078.7

Vertically Integrated Companies:Bashneft 1,366.3 1,997.5 3,363.8 3,005.1Gazprom neft 5,346.6 1,570.5 6,917.1 5,957.6LUKOIL 13,304.1 3,759.7 17,063.8 0.0 15,224.3Rosneft 34,310.4 15,248.5 13,028.3 819.6 63,406.8RussNeft 2,586.8 1,368.6 3,955.4 3,744.4Surgutneftegaz 17,900.7 6,407.0 24,307.7 21,660.6Tatneft 5,240.3 4,485.4 9,725.7 8,745.8TNK-BP Holding 8,359.7 5,321.5 869.1 14,550.3 14,550.3Total for Vertically Integrated Companies 88,414.9 40,158.7 13,028.3 1,688.7 143,290.6State Controlled Companies:Gazprom 499.7 499.7 456.0NOVATEK 185.8 185.8 163.0Other Oil-Producing and Exporting Companies

7,437.8 1,228.1 8,665.9 7,775.1

PSA Operators 1,262.4 1,262.4 1,131.3Total export for Russian Federation 97,614.8 41,572.6 13,028.3 1,688.7 153,904.4Kazakhstan's transit via Transneft 15,292.2 15,292.2 13,862.4Azerbaijan's transit via Transneft 1,496.8 1,496.8 1,327.5Turkmeniya's transit via Transneft 37.7 37.7 36.0Belarus 1,347.7 1,347.7Far abroad export and transit via Transneft 114,441.5 42,920.3 13,028.3 1,688.7 172,078.8Export to far abroad passing Transneft 18,682.9Far abroad export and transit 190,761.7Far abroad export from Russia 172,587.3Far abroad transit 18,174.4CIS countries export 23,281.9Export to Kazakhstan 5,700.0Export to Kazakhstan via Transneft 5,665.8Export to Kazakhstan passing Transneft 34.2Export to Belarus 17,581.9Export to Belarus via Transneft 16,529.7Export to Belarus passing Transneft 1,052.2Export to Ukraine 0.0Export to Ukraine via Transneft 0.0Total export and transit 214,043.6Total export from Russia 195,869.2Total transit 18,174.4

Note: All figures are preliminary; nonreconcilable totals reflect incomplete data supplied by the RF Ministry of Energy


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