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Forbes: Total Victory Is Qualified Win

Vidya Ram, 07.12.07, 12:59 PM ET
 
LONDON – France’s Total has been watching from the sidelines as other international oil and gas companies have gotten involved in lucrative Russian ventures. Therefore, the news that Gazprom has chosen the company as a partner to operate the Shtokman gas field, the world’s largest natural gas field, is no small victory, even though Total will be entering as a minority shareholder, without any ownership rights over the fields themselves.

Gazprom, by now expert at coding messages in its actions, is signaling that if companies are willing to play by its rules, they can have access to the country’s coveted resources.

The Russian state-owned company announced on Thursday that it had chosen Total (nyse: TOT – news – people ) from among four foreign companies vying to have a minority equity share in the new company that will be set up to operate the gas field, located in the Barents Sea. Alexey Miller, chairman of Gazprom’s management committee, said the two companies signed an agreement on Wednesday in Moscow, under which Total will be given a 25.0% stake in the new company.

He added that further partners could also join in, though Gazprom would keep a minimum 51.0% of the operation.

“There exists an opportunity to include one more or several foreign partners with an additional stake up to 24 percent, due to possible reduction of the Gazprom involvement,” said Miller.

The remaining bidders are Norsk Hydro (nyse: NHY – news – people ), Statoil (nyse: STO – news – people ) and ConocoPhillips (nyse: COP – news – people ).

Norway’s Statoil is the most likely contender for a possible 24.0% stake, said Xavier Grunauer, an analyst at Nomura. The company is thought to have the necessary offshore experience through its operations in the North Sea.

Norsk Hydro’s energy division will be merged into Statoil later this year.

Over the past year Gazprom has repeatedly changed its mind about what type of involvement foreign companies could have in the fields. At one point last year it issued a statement saying that no foreign companies would be given an equity stake. Even though the Russian monopolist subsequently revised the terms, they were too restrictive for Chevron (nyse: CVX – news – people ), which withdrew from the bidding.

Gazprom will reap significant benefits from foreign involvement in the project, said Grunauer, including sharing technological experience and knowledge, along with financial and project risks.

In addition, Gazprom will be hoping that a tie-up with Total and other international players could help it market liquefied natural gas from Shtokman globally.

Previously, Royal Dutch Shell (nyse: RDSA – news – people )’s involvement in a project on Sakhalin Island in the Pacific facilitated the marketing and sales of LNG to consumers in Asia and Japan.

The latest announcement reinforces a policy that Gazprom has been exercising through other recent developments, including forcing BP (nyse: BP – news – people ) to sell its stake in the Kovykta gas fields and halving Royal Dutch Shell’s stake in Sakhalin-2.

“They are saying oil and gas reserves are strategic and will remain under Russian control. Foreign companies can participate, but only through minority interests and potentially as operators,” said Grunauer.

It is not surprising that Total is willing to accept Gazprom’s terms. The gas field is believed to have 3.7 trillion cubic meters (130.66 trillion cubic feet) of reserves, enough to fill more than 3 million Wembley Stadiums.

Gazprom said it expects a pipeline under construction to start supplying gas from Shtokman in 2013, and the facility will begin producing liquefied natural gas the following year.

Shares in Total were up 89 euro cents ($1.23), or 1.5%, at 61.44 euros ($84.64) in afternoon trading in London. Statoil zoomed up 4.74 Norwegian kroner (82 cents), or 2.6%, to 190.75 Norwegian kroner ($33.13), while Norsk Hydro climbed by 6.75 Norwegian kroner ($1.17), or 2.9%, to 241 Norwegian kroner ($41.63) in Oslo.

By contrast shares in Royal Dutch Shell were down. The company’s A shares were trading down 13 pence (26 cents), or 0.6%, at £20.50 ($41.62), and its B shares ticked down 17 pence (34 cents), or 0.8%, to £20.90 ($42.42) in early-afternoon trading in London. BP was up just 50 pence ($1.01), or 0.1%, at £6.10 ($12.38).

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