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Oleg Mitvol of the natural resources ministry, the scourge of Shell over Sakhalin 2

Financial Times: Imperial faces more potential pitfalls

By Ed Crooks in London
Published: April 3 2008 02:33 | Last updated: April 3 2008 02:33

Imperial Energy has greater oil reserves than any other independent company – that is, excluding Royal Dutch Shell, BP and BG Group – listed in London.

Its proven and probable reserves are 920m barrels of oil equivalent. Including the possible reserves that are believed to be present at its fields in the Tomsk region of western Siberia, the figure is 3.4bn boe. As the scale of its success in finding oil has become apparent its shares have soared, to a peak at the beginning of the year of £18.60.

It is a point of pride for Peter Levine, the chairman, that the company has built its reserves entirely through exploration: “By the drill bit”, as the industry puts it.

Yet, as Wednesday’s plunge in the share price showed, finding oil is only the start of what is needed to make a company a true success. There is a series of further hurdles to be jumped.

For a time last year it looked as though politics would be Imperial’s downfall. The Russian government put pressure on the company over its reserves reporting, led by Oleg Mitvol of the natural resources ministry, the scourge of Shell over Sakhalin 2.

More recently that pressure has eased. Mr Levine said no issues had been raised “for a very long time”, and Imperial’s exploration licences had been extended, “which they would not have done if there was any black mark against us”.

Another potential pitfall was the need to build three pipelines to connect Imperial’s fields to the Russian oil transport system. But that work has been successfully completed.

What remains, however, is a huge drilling programme to hit the production targets Imperial has set. Although output was running at 10,000 barrels a day at the end of last year, it slipped in the first quarter to an average of about 7,000 b/d.

Imperial has promised to get to 25,000 b/d by the end of this year and 35,000 by the end of next year, which it expects to mean drilling 112 wells in 2008-09. Hence the total development bill of about $350m (£176m) this year and $250m next year.

If the drilling goes well and the oil flows, Imperial could be worth a lot more than it is now.

If not, the interest shown by Gazprom, which made an approach to take a stake last year, could be rekindled. Mr Levine says that it is a “dead issue”, and although he would be open to co-operation with a strategic partner, he would want to do so from a position of strength, not weakness. It is now up to him to put Imperial in that position.

Copyright The Financial Times Limited 2008

http://www.ft.com/cms/s/0/550b9ce2-011d-11dd-a0c5-000077b07658.html

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