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Putin Pushes International Oil CEOs for Access to Assets

By Jake Rudnitsky and Ilya Khrennikov on June 22, 2012

President Vladimir Putin asked the chief executives of U.S. and European energy producers to grant Russian companies access to international assets, holding out some of the world’s biggest untapped resources as a prize.

Putin is hosting the heads of Royal Dutch Shell Plc (RDSA), ConocoPhillips, BP Plc (BP/) and Eni SpA (ENI) at the St. Petersburg International Economic Forum, using the three-day event to say Russia is one of the most welcoming countries for energy investments.

“Far from all countries allow such a broad involvement by foreign companies in the energy sector,” Putin said in a speech yesterday, pointing to Mexico and Norway as countries where state-owned companies dominate the energy industry.

State-controlled OAO Rosneft, Russia’s largest oil producer, has formed alliances with Exxon Mobil Corp., Eni and Statoil this year that grant access to potentially billions of barrels of offshore and hard-to-recover resources in exchange for stakes in projects abroad.

“There is a natural tendency when you have a strong domestic industry to want to grow it internationally,” Daniel Yergin, an energy analyst and Pulitzer Prize-winning author of books chronicling development of the global energy industry, said in an interview. “Putin wants strong Russian international majors.”

Shell Expansion

Putin singled out The Hague-based Shell, which has been in talks with OAO Gazprom about international deals, praising the company on its joint ventures within Russia and saying he supports their expansion.

“The government may help with administrative support if needed,” while discussions about further domestic cooperation will be held at the corporate level, he said.

Statoil has asked Gazprom to bring Shell in as a partner in the Shtokman natural-gas project, RIA Novosti reported, citing an unidentified person familiar with the matter who spoke at the forum.

Rosneft signed agreements with Eni and Statoil yesterday, adding to accords reached in April and May. They grant Rosneft potential access to refining and North African assets held by the Italian company and Norwegian offshore projects in exchange for Russian exploration rights.

“Integration is high on the agenda,” Deputy Energy Minister Pavel Fedorov said in an interview. “It is the only way to transfer technology, knowledge and capital needed to make Russia competitive in the long-term.”

Russian Resources

International oil companies are seeking ways to access Russia’s hydrocarbon resources to bolster reserves. ConocoPhillips (COP) (COP) is interested in unconventional resources and other opportunities in Russia, while Russian companies stand to gain knowledge and technology as if they enter projects abroad, company official David Farthing said in an interview.

Russia’s openness to foreign capital is a reversal from policies that favored state-owned companies last decade. State- owned companies were given the exclusive right to develop offshore deposits in 2008. Shell was forced in 2006 to cede Gazprom the control of its Sakhalin-2 oil and gas project, amid threats by regulators to revoke the permits on environmental grounds.

Russia has also promised tax incentives for offshore and hard-to-recover resources to spur investment as it seeks to preserve output at over 10 million barrels a day for the next decade. The government, which got half of its tax revenue from oil and gas in 2011, is considering further reduction of its crude export taxes next year, after cutting them last October, Fedorov said.

“Clearly taxes for upstream are excessive,” Fedorov said. “People understand the tax system needs to change.”

Big Risks

“The energy industry takes very big risks and needs to work with partners, and that’s not only in Russia but outside of Russia,” BP Chief Executive Officer Bob Dudley said at the forum.

BP, which owns half of Russia’s third-largest oil producer, is seeking a buyer for the stake amid tensions with its billionaire partners in nine-year-old TNK-BP. The venture, the biggest foreign energy investment in Russia, accounts for about a quarter of London-based BP’s output.

BP also holds a stake in Rosneft, having bought $1 billion of shares in that company’s 2006 initial public offering.

Putin touted OAO Lukoil, Russia’s second-biggest oil producer, as another example of a company with foreign participation. Lukoil’s billionaire CEO Vagit Alekperov told Putin the company is 50 percent foreign-owned.

“Putin emphasized reciprocity and, given that technology flows are so critical in this industry, it could make sense,” Yergin said.

To contact the reporters on this story: Jake Rudnitsky in St. Petersburg at [email protected]; Ilya Khrennikov in St. Petersburg at [email protected]

To contact the editor responsible for this story: Stephen Voss at [email protected]


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