Rosneft’s long-term development program calls for annual production growth for oil through 2030, the company’s chief, Eduard Khudainatov, told reporters on December 1.
In his remarks, Eduard Khudainatov did not specify where growth is envisaged, but the company has a number of large-scale projects planned, including in the Barents Sea, where it plans to bring investors on board for the opening of fields in the former “grey zone.” It is also seeking foreign investors for the Val Shatsky (Shatsky Ridge) offshore project in the Black Sea, and France’s Total is not the only foreign company interested, he said. Rosneft is also conducting negotiations on developing the Carabobo-2 block and as of yet has no plans to look for new projects in Venezuela, he said.
Production
Rosneft’s long-term development program calls for annual production growth for oil until 2030, Khudainatov said. Khudainatov said the program was “practically ready, and currently being adjusted.”
He did not say what pace of oil production growth was envisaged, but said “we’ll definitely be growing up to 2030.”
Rosneft has already approved its forecast 2012 production, he said, again without elaborating. “We’ve said 120.2 million tons for this year, so we’ll have good growth this year, and even better next year,” he said.
Rosneft expects oil production at the Vankor field will rise to 18 million tons in 2012 from an anticipated 15 million tons in 2011.
Khudainatov did not name a long-term capex figure either.
“The investment volume [for the program to 2030] hasn’t been finalized yet, as we need to get a better idea of capex in the Arctic shelf projects,” he said.
Rosneft has said it altered the timeframe for drafting the strategy on several occasions.
Barents Sea
Rosneft plans to bring investors on board for the opening of fields in the former “grey zone” of the Barents Sea, Khudainatov told reporters.
Rosneft has already asked Subsurface Resources Agency (Rosnedra) to issue three licenses without tender for the opening of sectors on the Barents shelf and expects them soon, Khudainatov said. “Rosneft is really waiting for these sectors. They are very important for the company both strategically and from the investment point of view,” he said.
“I think that we will be inviting partners in. That would be correct and sensible, because these are huge sectors,” Khudainatov said. He did not say whom Rosneft might consider an interesting partner, but did say that Norwegian companies already have a lot of information about the “grey zone’s” geological structure. “Norwegian companies want to join us. It would, it’s true, be most effective to work with those that have the data. The Norwegians have already begun geological prospecting on their sectors of the ‘grey zone,’” he said.
Khudainatov made clear that is is unlikely for Shell to be involved in opening these sectors. “Shell has already found a strategic partner for itself. It is Gazprom,” he said.
Next spring, he continued, Rosneft plans to begin technical research of Vostochno-Prinovozemelsky sectors on the Caspian Sea shelf it is working with ExxonMobil. “Our ships will depart to research not only the Yuzhno-Russky, by also the Prinovozemelsky sectors in April-May. The entire flotilla will depart in the spring,” he said.
The opening of the Caspian Sea, and most importantly the drilling of wells into the Prinovozemelsky sectors, will turn Rosneft into a global energy company, Khudainatov said. “Rosneft’s job is to become a global energy company. I think that in 2020 that will happen. We have full confidence in this because in that time we will drill wells into the Arctic shelf and know the initial data on reserves,” he said.
Rosnedra was to submit a draft decision on allotting Rosneft three Barents Sea sectors in the former “grey zone,” along with a Novaya Zemlya sector, to the government in December.
In August, Rosneft and ExxonMobil signed an agreement on strategic cooperation in Russia, the United States, and third countries. The agreement foresees around $3.2 billion of investment in geological exploration and development of three licensed sections belonging to Rosneft in the Karsk Sea – the East-Prinovozemelsky 1, 2, 3, as well, as the Tuapsinsky licensed section in the Black Sea. ExxonMobil’s stake in the joint venture for the section’s development will come to 33.3% and Rosneft will hold 66.7%.
The agreement also provides Rosneft with the opportunity to receive a stake in ExxonMobil’s exploration projects in North America, including the deepwater Gulf of Mexico and fields with complex geological structures in Texas, as well as potential projects in other countries. In addition, the companies will jointly study possible development of complex oil reserves in Western Siberia.
Rosneft signed a memorandum with ExxonMobil to develop the Tuapse Trough in the Black Sea in January 2011 and a detailed agreement was expected to be signed by the end of this year.
The South Russian section has resources of 21.8 million tons of oil and 49.2 billion cubic meters of gas. The North Gulyayevskoye field, with C1+C2 category oil reserves of 13 million tons and gas reserves of 52 bcm, is located there. Rosneft received the license for it in November 2010.
Val Shatsky
France’s Total is not the only foreign company interested in the Val Shatsky (Shatsky Ridge) offshore project in the Black Sea, Khudainatov said.
“Total has serious competitors, several companies are working in the data room,” Khudainatov told reporters.
“Therefore, we are not making a decision yet. We want to make the best decision for the company. It will depend on the conditions, the technology that they offer for exploration, on investment, their experience, their qualifications,” Khudainatov said.
He said the project to develop the Val Shatsky field is quite difficult, including in terms of geology. “There are difficult structures of geological deposits, and very serious work is needed,” Khudainatov said.
He said Rosneft might soon decide on a partner for Val Shatsky.
“We still have time. But I think that we will decide in the near future,” Khudainatov said.
Rosneft and Chevron reached an agreement on the joint development of Val Shatsky in June 2010, but in March 2011 there were reports that the U.S. company might pull out of the project over differences concerning the geology of the field.
Val Shatsky LLC, which Rosneft acquired in 2007 among other former assets of the bankrupt Yukos, holds the license to the Zapadno-Chyornomorskaya section. There have been ten or so structures identified at the license block, the biggest of which are Severo-Chyornomorskaya, Mariya, and Sklonovaya. Water depth at the sections is 1.2-2 kilometers. The Zapadno-Chyornomorskaya section borders Rosneft’s Tuapsinksy section.
Overall resources are estimated at 6.3 billion barrels of oil. Projected D2 hydrocarbon reserves at Val Shatsky are 1.456 billion tons of oil and 433 billion cubic meters of gas.
Total CEO Christophe de Margerie said recently that Total is considering joining Rosneft in the Val Shatsky project. Total and Rosneft are looking at various options for geological prospecting projects, and Val Shatsky is one of them, de Margerie said.
Venezuela
Rosneft is conducting negotiations on developing the Carabobo-2 block and, as of yet, has no plans to look for new projects in Venezuela, Khudainatov told journalists.
“Carabobo-2 is a block with 5 billion tons of oil reserves. For the record: Rosneft has equal reserves,” he said.
The company’s investments in the project require both bonus payments and loans for developing the block. “The amounts that Rafael Ramirez (head of PDVSA and Venezuela’s Oil Minister) called for are logical,” Khudainatov said.
The development of Carabobo-2 requires serious investment because the project is technologically complex, he said. At the same time, the project assumes the possibility of so-called early oil production. “There is the possibility of early light oil production, which will require special technology and additional investment. There is also heavy oil, the production of which will begin when light oil runs out. This stage will require steam generators and upgraders – that is, plants that refine that oil,” he said.
At the same time, this project is attractive from the point of view of oil logistics and proximity to energy resource consumers, he said.
“The investments are very serious, but the logistics and the consumer market are in the vicinity. Besides, the main oil consumer – the United States – is also nearby. And this is very interesting. All of this will provide a very nice income,” Khudainatov said.
Press reports have said with reference to Ramirez that Rosneft will pay PDVSA $1.2 billion and extend it a loan of $1 billion for access to Carabobo-2.
Russia’s National Oil Consortium, which includes Rosneft, Surgutneftegas, Lukoil, Gazprom Neft, and TNK-BP, develops the Junin-6 block in Venezuela.
Gazprom Neft looks to grow exports to Latin America, Africa, Mideast
Gazprom Neft intends to develop new oil-export destinations to Latin America, the Middle East, and Africa, Vitaly Vyatkin, the managing director of Gazprom Neft subsidiary Gazprom Neft Trading GmbH, said during an interview with the Gazprom corporate journal.
“The main oil sales markets for Gazprom Neft Trading remain Europe and Asia, for diesel fuel and naphtha – Europe, Africa, and the Asian-Pacific region, for fuel
oil – Europe and the Asian-Pacific region. Meanwhile, the development of international Gazprom Neft production projects will determine the advent of new export directions – to Latin America, the Middle East, and to Africa,” Vyatkin said.
The company is also working through options for transporting fuel oil and naphtha to Asia. The greatest demand for the latter is in China, Taiwan, Japan, and South Korea, Vyatkin said.
From 2008 through the first half of this year, Gazprom Neft Trading sold roughly 88 million tons of oil and oil products. The bulk – 51.5 million tons – went to Europe. Another 3.3 million tons of crude was exported to the Asian-Pacific region. There was 33 million tons of oil product sold in Europe, the Asia-Pacific region countries, and North America. Gazprom Neft accounts for the third largest portion of exports of diesel fuel among Russian companies, and for the fifth largest exports of oil and fuel oil.
Vyatkin said that the export of oil and oil products is done chiefly by sea-going tanker. Over the past three and a half years, the company shipped 24 million tons of oil out through the port at Primorsk. Around 11.9 million tons of oil was moved by the Druzhba pipeline during that period. Gazprom Neft Trading has exported 3.3 million tons via the Eastern Siberia – Pacific Ocean pipeline (ESPO) since its inception not that long ago.
He said that the Gazprom Neft business development strategy for international markets involves adding to the company’s export resources an increase in purchases of third-party oil for direct delivery to its own enterprises abroad and to target customers that refine oil in Europe and the Asian-Pacific region.
By 2015, the company expects to increase exports of low-sulfur diesel fuel by more than twice with the transition of all Gazprom Neft refineries to the production of Euro-5 standard compliant diesel.
Gazprom Neft had invested $12 million in developing an offshore project in Cuba by the middle of 2011, Gazprom Neft’s Project Director for Cuba and Equatorial Guinea Dmitry Borisov said. The company plans to begin drilling at the Catoche-1 structure in the first half of 2012.
Fourteen prospective structures have been identified at the section, the reserves of which are estimated at up to 400-500 million tons of hydrocarbons.
In the case that commercial operation begins at the fields, oil production is planned until 2037, and gas production – until 2042.
Gazprom Neft, which owns 30% of the Production Sharing Agreements (PSA) project in Cuba, is developing offshore blocks with Malaysian company Petronas. Borisov does not rule out the possibility of another company investing in the project – Cuban state-owned company Cupet, whose stake could total 20%.
With regards to developing the business in Equatorial Guinea, where Gazprom Neft is also participating in a PSA, Borisov said that the company plans to invest $10 million in developing two of its offshore blocks by the middle of 2012. The blocks’ reserves total around 110 million tons.
Gazprom Neft chief Alexander Dyukov has said that the company could invest around $3 billion in projects in Equatorial Guinea over the course of 30-35 years. At its peak, oil production there could reach 6-7 million tons.
Gazprom Neft could also buy a stake in the Elephant project in Libya over the course of the year after termination of force-majeure, Project Director for Cuba and Equatorial Guinea Dmitry Borisov said in an interview with Gazprom’s corporate journal.
“After our partners notify us of the termination of the existing force-majeure, we will have a year to exercise the right to utilize the option and to acquire from Eni 33% in the consortium that controls 50% of the Elephant project for $163 million,” he said.
Gazprom Neft chief Alexander Dyukov has said that the Russian company has not yet received notification from Eni on the termination of force-majeure at the Elephant field in Libya.
In the middle of September, Gazprom and Eni signed a deal to join the Elephant project. The agreement effects the transfer to Gazprom of 50% of Eni’s stake (33%) in the consortium working the Elephant deposit in Libya.
The two companies took part this February in signing ceremonies for documents on the sale of this asset, but in fact the agreement was not fully signed. For it to take force, it has to be approved by the Libyan government, which was not possible due to the outbreak of civil war. The power transfer from the Muammar Gaddafi regime to the National Transitional Council raised doubts that the new authorities would affirm readiness to work with Russia.
The Elephant field, which went commer-cially*on*stream*in 2004, lies 800 kilometers south of Tripoli. The project is being implemented by a consortium of Eni (66%) and Korean National Oil Corporation (33%).
Meanwhile, Gazprom Neft is thinking of bidding at the fourth licensing round for oil and gas fields in Iraq, Alexander Kolomatsky, the director of the company’s Badra project, said in an interview with the parent company Gazprom’s in-house journal.
“The fourth round for the allocation of fields will take place in Iraq soon, and we are thinking of taking part,” Kolomatsky said.
Gazprom Neft has said that it planned to focus on the Badra project in Iraq.
Regarding Badra itself, Kolomatsky said the participants had spent around $100 million on a pro-rata basis. “The capital intensive work begins next year, with drilling, well testing, equipment procurement, and investment of $700 million is planned,” he said.
The project should pay for itself in seven years, he said.
The partners intend to build a plant capable of treating 1.5 bcm of gas per year as part of the project. The gas will be pumped along a 180-km pipeline to two power plants in Baghdad. It will be expressed in oil equivalent, and Gazprom Neft will be remunerated for extracting it. A storage facility with a life of five years will be built to store the sulfur, which will be granulated and marketed by Iraq itself.
The 12 blocks included in the fourth round of oil and gas auctions include seven potential gas and five potential oil properties. The organization stage of the latest tender has been ongoing in 2011, and contracts should be signed in January 2012. Russia’s Bashneft, TNK-BP, Rosneft, Gazprom, and Lukoil got pre-qualified.
The Badra deposit is located in the Wassit province in eastern Iraq. Initial assessments indicate that the geological reserves in Badra could reach 3 billion barrels of oil. The contract with the Iraqi government for the development of the deposit was signed in January 2010 following a tender in December 2009.
Project operator Gazprom Neft has a 30% interest, Kogas 22.5%, Petronas 15% and TPAO 7.5%. The Iraqi government share is 25%. The project will cost an estimated $2 billion and is expected to last 20 years with a possible five-year extension. Production will peak at an estimated 170 000 barrels per day (8.5 million tons per year) by 2017 and remain at that level for a period of seven years.