SUMMARY: Itera eyes winning combination with Rosneft
MOSCOW. Feb 29 (Interfax) - Itera Oil and Gas Company has finally announced the partner with which it hopes to become Russia's leading independent gas producer, a title currently held indisputably by NOVATEK. Itera has partnered with state oil major Rosneft , which in turn hopes to intensify the development of its idle gas assets with Itera's help. Itera will contribute producing gas assets to the joint venture, while Rosneft will contribute undeveloped reserves.
Master class
The problem of both companies was access to the unified gas distribution system of Gazprom. For Itera, thanks to certain concessions, this is in the past, but for Rosneft it is still a matter for the present. Itera prepared its independent gas asset Sibneftegaz for launch in 2003, but it sat idle for four years until Gazprombank acquired control of it with a view to subsequently selling it to Gazprom.
Having hooked up Sibneftegaz in 2007, Itera began preparing for an IPO or to attract a strategic partner, but the global financial crisis stalled these plans.
While Itera was negotiating with Gazprom to connect one asset, NOVATEK brought in Gazprom and the founder of oil trader Gunvor, Gennady Timchenko, as shareholders, which dramatically expanded its presence on the Russian market and enabled it to acquire world-class reserves - for example, it bought 51% of Sibneftegaz instead of Gazprom. Itera's other major asset is Purgaz, where Gazprom already has control and which has already reached its production peak.
Rosneft, with about 800 billion cubic meters of proven natural gas reserves, mainly produces associated petroleum gas because it cannot reach an agreement with Gazprom on a connection to gas pipes, despite the fact that both are state companies. About half of Rosneft's reserves are at the Kharampurskoye field in Western Siberia.
Parade of suitors
It became clear that it would be difficult to compete without a strong partner on the Russian gas market. TNK-BP, anticipating the consolidation of gas assets on the Russian market, began negotiations with Itera's owners to buy a 50% stake in the company. But Itera head and principal shareholder Igor Makarov said he needed a strategic partner who could expand the resource base. Experience working on the continental shelf would also help, Makarov said.
This recalled another failed deal on the gas market - businessman Farkhad Akhmedov's attempt to sell 49% of Northgas to Inter RAO . The agreed upon price was subsequently raised repeatedly by the seller, and then he walked away from the deal altogether, saying that there is no gas market in Russia and that it was impossible to get a fair price for growing assets.
From this point of view, and taking into account its desire to stay in the gas business, Itera's strategy of forming a joint venture, rather than directly selling a stake in its business seems understandable.
Itera also invited Gazprom to set up a joint venture that would have included fields it was not developing, but in vain. And so Itera has found another state giant to become its partner. Rosneft's board of directors was until the summer of 2011 chaired by Deputy Prime Minister Igor Sechin, who oversees the fuel and energy sector, but he stepped down after the Russian president gave orders to remove government officials from the boards of directors of state companies. Meanwhile Makarov, as part of the same presidential order, was nominated for the board of Rosneftegaz. This state company holds the government's stakes in Rosneft and Gazprom, and now Makarov can theoretically exert some influence on them.
Sechin is thought to favor reducing gas producers' dependence on Gazprom and is considered a lobbyist for free access to the monopoly's gas transport system.
"Joint projects to be developed under the agreement will be a substantial step forward in implementing Rosneft's strategic program to increase the share of gas reserves under development," said the company's chief, Eduard Khudainatov. "We expect the joint venture to become the flagship on the Russian independent gas producer market," said Itera's Makarov.
A furious regatta
The joint venture would comprise Itera Group's gas assets - 49% of Sibneftegaz, 49% of Purgaz, 67% of Uralsevergaz and several other assets - and Rosneft-owned deposits in the Kynsko-Chaselsk group. "It is envisaged that other Rosneft gas assets would be transferred to the joint venture in the future," the companies said. Interfax understands this refers to the Kharampur deposit.
The joint venture's initial combined recoverable liquid hydrocarbon and gas reserves will be 50.7 million tonnes and 600 bcm, respectively and, including Kharampur, potentially 60 million tonnes and 1.2 trillion cu m. "In the coming years the company could extract and sell over 40 billion cubic meters of its own gas per year," the companies said. They did not say when precisely that milestone might be achieved, although almost all gas market participants have announced production targets for 2020: NOVATEK said it aims to double output to 112 bcm by then, TNK-BP could raise it to 35 bcm, and Lukoil is targeting 30 bcm per year in Russia.
Purgaz and Sibneftegaz currently produce around 25 bcm per year, so Itera's share would be 12.6 bcm. Total gas sales by the company last year were 23.4 bcm, and Itera purchases around 4 bcm from NOVATEK.
Rosneft does not say how much the Kynsko-Chaselsk group of fields produces, but Rosneft-Purneftegaz, which operates them, among others, produces around 3.7 bcm per year.
Rosneft said in a report for 2008 that it might produce up to 55 bcm per year by 2020 if the Kharampur field goes into production.
Rosneft and Itera have also agreed to pursue joint efforts to expand their gas business through the acquisition of new gas producing assets.
So if Itera does manage to agree with Rosneft on including Kharampur in the joint venture and with Gazprom or the government on allowing it into the pipeline, and if it does acquire new licenses and puts new fields into production, then its captain's stripes dagger will be well deserved after all the company's years of apprenticeship.
