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The New York Times: French Oil Giant Agrees to Work on a Russian Natural Gas Project

Published: July 13, 2007

MOSCOW, July 12 — The French oil company Total has agreed to form a consortium with Gazprom to develop one of the world’s largest natural gas deposits offshore in the Arctic, an indication that major oil companies are willing to continue working in Russia despite the risk that their property will be nationalized.

Total’s deal is a long-sought prize for foreign companies in Russia as opportunities slow for energy investments worldwide. The field holds enough gas to meet all European demand for seven years. The deal comes after two similar, large investments in Russia were partially nationalized in the last six months.

Russian authorities forced Royal Dutch Shell and TNK-BP, a joint venture of BP, to sell majority stakes in two natural gas and oil projects in December and June. In those cases, the beneficiary was Gazprom.

Total’s willingness to reach a deal with Russia suggests the lengths oil majors will go to tap reserves in countries with governments increasingly hostile to international oil companies, as in the former Soviet Union, the Middle East and Africa, energy analysts said.

In the agreement announced Thursday, Total will be a junior partner while the Kremlin will retain control. The deal gives Total no claim to the underlying reserves of natural gas. Instead, the French company will own 25 percent of the operating company that will develop the area, the Shtokman field, about 340 miles north of Russia’s Arctic coast.

“As a matter of principle, the Russians will not have companies as owners of the assets underground,” Jan T. Thompson, an energy attaché at the Norwegian Embassy in Moscow, said in a telephone interview. The Norwegian companies Statoil and Norsk Hydro had also bid for a role in the Shtokman field.

“Some other formula had to be found,” Mr. Thompson said. “This would seem to be that formula.”

The operating company with Total as a minority partner will also help finance the field, considered one of the most technically challenging energy projects in the world. It will not own the gas that is eventually produced, or have any say over where it is sold. Gazprom will retain the license to the field through a separate subsidiary, the company said in its statement.

A spokeswoman for Total declined to elaborate, other than to say Christophe de Margerie, the chief executive, plans to be in Moscow on Friday for a signing ceremony.

The field, expected to go online in 2013, can supply either the East Coast of the United States or Europe. It holds 3.7 trillion cubic meters of gas and 31 million metric tons of gas condensate, or the equivalent of enough to supply the total gas demand of countries in the European Union for seven years.

The chief executive of Gazprom, Aleksei B. Miller, presented the deal as a positive step, perhaps healing the breach with foreign companies opened after the forced sales of Shell and BP property.

Shell — just six months after the loss of control its Sakhalin II project — also expressed interest in further work in Russia this week by signing a partnership agreement with Rosneft, the Russian state oil company.

Russia holds the world’s largest reserves of natural gas and eighth-largest reserves of oil, according to the International Energy Agency in Paris.

The Shtokman field, far above the Arctic Circle, is dark six months of the year and subject to fierce winds and storms. Platforms would need to be impervious to icebergs. And once extracted, the gas would have to travel by undersea pipeline to Russia’s northern coast.

Negotiations, which have been going on almost since the field was discovered in 1988, with two previous consortium deals collapsing, became a balancing act between the oil majors’ offer of technical help and the Russians’ insistence on national control.

“Historically, the majors tended to control projects,” Charles Swanson, a managing partner in the Houston office of Ernst & Young, said. “Now, national oil companies dictate terms. Like it or not, it’s the wave of the future.”

In such deals, oil majors sometimes cannot book the reserves under Security and Exchange Commission rules because it is unclear what, if anything, they control, he said.

Before a cooling in American-Russian relations last year, the Shtokman field had been the centerpiece of a continuing effort by the Bush administration to encourage direct Russian oil and natural gas shipments to the United States, as a method of diversifying supplies away from the Middle East.

But in October Gazprom abruptly halted talks with five foreign oil companies — Total, Norsk Hydro and Statoil, and ConocoPhillips and Chevron of the United States — and said it would develop the Shtokman field on its own. Mr. Miller said at the time that companies might be invited back as contractors.

Total, the Norwegians and ConocoPhillips continued talks; Chevron said it was no longer interested. Norsk Hydro and Statoil are in a merger planned for Oct. 1, and will be called StatoilHydro.

Total had not done well in Russia recently. The company owns 50 percent of a midsize production sharing agreement in the Russian north. But just last year, Rosneft canceled a partnership with Total to develop the $3 billion Vankor oil field in Siberia, and Total lost a court appeal of the decision. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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