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The Moscow Times: Rosneft Looking At Shell Hookup

Tuesday, July 10, 2007. Issue 3695. Page 1.
By Anatoly Medetsky
Staff Writer

Shell and Rosneft will look at joint oil projects in Russia and elsewhere in a potentially lucrative deal that could give the European energy major a chance to widen its access to Russian reserves and shore up its position in the country.

The deal, announced Monday, could also help Rosneft, burdened with heavy debt after a series of acquisitions earlier this year, secure a foreign partner to finance greenfield development.

Shell had to cede control of its giant offshore Sakhalin-2 project to Gazprom last year, following months of pressure from state environmental officials. The British-Dutch firm is after new investment opportunities in Russia at a time when its two existing projects — in Sakhalin and Siberia — are close to maturing.

The partnership was sealed through an agreement signed Friday by Rosneft CEO Sergei Bogdanchikov and Shell CEO Jeroen van der Veer, the companies said in a statement.

“The agreement … will allow our companies to seriously widen the scope and geography of our work,” Bogdanchikov said in the statement.

For Shell, Russia is a strategic growth area where it wants to develop in cooperation with Russian companies across the entire range of the energy business, Van der Veer said. “Shell, with its global experience of applying technologies in an integrated way, will complement Rosneft’s strengths and experience on the Russian market,” he said in the statement.

Study groups from both companies will come up with specific opportunities for joint work over time, Shell spokesman Alf D’Souza said.

Shell also has a partnership deal with state-controlled Gazprom, which benefited from Kremlin leverage to shoehorn its way into controlling Sakhalin-2.

“We have now agreements with two of the key Russian players,” D’Souza said, adding that these agreements were a result of previous relationships.

“We want to grow businesses in Russia,” he said by telephone late Monday. “What the exact number will be depends on business opportunities. We will be keen to try and secure all the business we can.”

Shell now has a 27.5 percent stake in Sakhalin-2, which includes the world’s largest liquefied natural gas project. It is expected to start LNG production next year.

Shell also holds half of the Salym project in east Siberia, one of the country’s biggest new onshore fields. The other half belongs to London-listed company Sibir Energy, controlled by Russian businessman Shalva Chigirinsky. Commercial production started in 2005 and is expected to peak by 2010.

Chigirinsky said Thursday that he was in talks to sell a majority stake in Sibir to Gazprom.

Sakhalin-2 and Salym “are nearing a peak and [Shell] would like to find the next story,” said Artyom Konchin, an analyst at Aton brokerage.

Joining forces with a state-run company is a warranty of easy access to new promising fields for Shell, Konchin said. “If it wants to take part in projects of significant size … Russian state companies have advantages here,” he said.

Rosneft will draw on Western expertise and finances under this partnership, said Konchin and Konstantin Batunin, an analyst at Alfa Bank.

Shell may have laid the foundation for the deal when it subscribed to Rosneft’s initial public offering last year, buying 1.1 percent of the company, Batunin said.

At least in public, Shell appears to have gotten over its possible disappointment over losing control of Sakhalin-2. At the St. Petersburg International Economic Forum last month, Van der Veer thanked President Vladimir Putin for helping to arrange the deal under acceptable terms.

Rosneft acquired a slew of assets from bankrupt oil firm Yukos earlier this year, accumulating a huge debt but becoming the nation’s top oil producer and refiner. Rosneft is valued at $88 billion, while Shell’s capitalization is $276 billion.

As one possible area of cooperation outside Russia, Rosneft and Shell have holdings in the sector of the Caspian Sea that belongs to Kazakhstan.

Shell has a stake in a major offshore field, Kashagan, and other offshore deposits. Rosneft owns a portion of Kurmangazy field, which straddles the Russian and Kazakh sectors of the Caspian. The companies also jointly own 7.5 percent of the Caspian Pipeline Consortium, which pumps crude from Kazakhstan to the Russian Black Sea port of Novorossiisk. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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