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Reuters: UPDATE 2-Rosneft, Shell sign strategic cooperation deal

Mon Jul 9, 2007 2:32 PM BST

(Adds details, analysts throughout)

By Dmitry Zhdannikov and Tanya Mosolova

MOSCOW, July 9 (Reuters) – Oil major Royal Dutch/Shell on Monday signalled an attempt to rebuild its exposure to Russia, which was badly cut last year, by signing a framework cooperation deal with state-controlled Rosneft.

Shell said it would cooperate with Rosneft, Russia’s largest oil firm, in oil production and refining in Russia and abroad — six months after being forced to cede control of the Sakhalin-2 project to gas monopoly Gazprom.

Shell is now a minority partner in Sakhalin-2, a $21 billion liquefied natural gas project off Russia’s Far East coast. It is also developing the Salym oil project in Siberia and has said it was looking for a third big development in Russia.

“The agreement reached today will allow our companies to seriously widen the scope and geography of our work,” Sergei Bogdanchikov, president of Rosneft, said in a statement.

The top-level agreement will gain substance over time as expert groups examine joint project proposals and, importantly, will ensure that Shell has a relationship with Russia’s two most powerful energy companies as elections approach.

Shell spokesman Alf D’Souza said he saw “no impact” on relations with Gazprom as a result of the Rosneft partnership.

“Russia has a diverse and significant set of opportunities where Shell can add value, and we look to grow business links with all the major Russian companies, including Gazprom and Rosneft,” D’Souza added.

Russia holds parliamentary elections in December, expected to return a large majority loyal to the Kremlin, and voters elect a successor to President Vladimir Putin in March 2008.


A source close to one of the companies said the two firms were considering joint projects in Russia and one more country, but declined to name it.

“But it has nothing to do with the sale by Rosneft of its 50 percent stake in Tomskneft,” the source said.

Rosneft said last week it had sold 50 percent of Tomskneft, a 230,000 barrels per day production unit it had bought from bankrupt oil firm YUKOS at auction in May.

Analysts have said state-owned Vnesheconombank, which paid $3.4 billion for the stake, could have agreed to hold the shares until Rosneft cuts its debt burden and can buy it back.

One industry source said Rosneft and Shell might find synergies in cooperating in Kazakhstan, where both firms have strong positions in the Caspian Sea.

Shell has a stake in Kashagan, the world’s largest oil find of recent decades, and other promising offshore deposits. Rosneft has a stake in Kurmangazy, another promising structure in the Kazakh waters of the Caspian Sea.

The two firms jointly own 7.5 percent of the Caspian Pipeline Consortium which ships crude from Kazakhstan to Russia.

Shell’s state-of-the-art technology might attract Rosneft, which could contribute state support to joint projects.

“Shell has advanced production technologies that might interest Rosneft. It is possible that Rosneft would get licences for new fields to develop them jointly with Shell,” said Artyom Konchin from Aton brokerage.

Shell holds 50 percent of the East-Siberian Salym project, one of Russia’s biggest onshore developments. The project launched commercial production in 2005 and is expected to be producing 165,000 barrels per day by the end of the decade.

Last year, Shell ceded control of the Sakhalin-2 project to Gazprom after pressure from Russia’s environmental authorities.

Shell’s share in what is the world’s largest liquefied natural gas (LNG) project halved to 27.5 percent after Gazprom bought 50 percent stake from Shell and its Japanese partners, Mitsui <8031.T> and Mitsubishi <8058.T>.

Rosneft became Russia’s top producer and refiner following purchases of YUKOS’s assets earlier this year and is currently valued at $88 billion compared to Shell’s $276 billion. (Additional reporting by Douglas Busvine) 

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