RUSSIA’S GAZPROMNEFT PLANS CRUDE OUTPUT HIKE

Russia’s state-run oil firm, GazpromNeft, has disclosed ambitious plans to hike its oil production level, which would require taking over new assets. In its drive toward becoming the country’s leading oil firm, GazpromNeft appears to be relying on its parent company Gazprom, currently chaired by President-elect Dmitry Medvedev.

On March 15, GazpromNeft CEO Alexander Dyukov announced plans to raise the company’s crude production to 49 million tons this year. Acquisition of new assets would allow GazpromNeft to pump up to 90 million tons/year and raise reserves from 500 million tons to 2.2 billion tons by 2020, Dyukov reportedly said (Interfax, Itar-Tass, RIA-Novosti, March 15).

Controlled by the state-run gas monopoly Gazprom, GazpromNeft has been built on the remains of the defunct Sibneft oil company. GazpromNeft currently pumps oil in Khanty-Mansiisk, Yamalo-Nenets, Tomsk, and Omsk regions and operates refineries in Moscow, Omsk, and Yaroslavl regions.

In 2007 GazpromNeft produced 32.7 million tons of oil, including 24.7 million tons from Sibneft-Noyabrskneftegaz and 6.6 million tons from GazpromNeft-Khantos. In other words, GazpromNeft now plans to nearly triple its crude oil output by 2020, making its target well above the expected growth rates for Russia’s oil sector. Dyukov also reported that the company expects oil output growth at Tomskneft facilities later this year after the company stabilized crude production at about 12 million/year (Interfax, Itar-Tass, RIA-Novosti, March 15).

In December 2007, GazpromNeft’s subsidiary, GazpromNeft Finance, acquired a 50% stake in Tomskneft from Rosneft. In May 2007, Rosneft placed a winning $6.8 billion bid for Siberian assets stripped from Yukos, including Tomskneft, with estimated oil reserves of 306 million tons.

However, both GazpromNeft and Rosneft disclosed few details of the transaction, and it remains to be seen how Tomskneft could actually be managed and controlled. GazpromNeft’s possible acquisition of the remaining 50% stake in Tomskneft from debt-ridden Rosneft may arguably signify the growing clout of Gazprom’s backers in the Kremlin at the expense of Rosneft supporters.

GazpromNeft’s ambitious plans to hike its oil production inevitably sparked speculation regarding more domestic acquisitions. On March 15, Dyukov denied that either GazpromNeft or Gazprom had negotiated a possible acquisition of the BP stake in TNK-BP (Interfax, March 15).

Also on March 19 Russian law-enforcement officers reportedly searched the TNK-BP office in Moscow and questioned two employees of the company (Interfax, March 19; see EDM, March 24). In recent years, similar action by Russian law-enforcement agencies tended to coincide with increased pressure on domestic and foreign companies designed to force them to cede control of assets in favor of state-run energy giants.

GazpromNeft’s expansion plans are not limited to the domestic oil sector. Dyukov has indicated that GazpromNeft also hopes to take over refineries in Eastern Europe. This statement came in the aftermath of a major energy deal with Serbia in January 2008.

On January 25, Russia’s Industry and Energy Minister Viktor Khristenko and Serbia Infrastructure Minister Velimir Ilic signed an agreement on energy cooperation, including plans to build the Serbian section of the South Stream gas pipeline system to funnel 10 billion cubic meters (bcm) of natural gas per year to Europe. The deal also stipulates joint construction of a gas storage facility near Novi Sad, Serbia.

Separately, Ilic and Dyukov signed a deal that allows GazpromNeft to acquire a 51% stake in the state-owned firm, “Petroleum Industry of Serbia” (NIS). GazpromNeft reportedly pledged to pay about $600 million for the share, and the deal also involved a commitment by GazpromNeft to invest about $750 million in NIS in the next four years. NIS owns two refineries in Serbia with a total annual capacity of some six million tons. Altogether the company controls more than two-thirds of the country’s oil and gas market.

The deals were signed in Moscow in the presence of Russian President Vladimir Putin and his Serbian counterpart, Boris Tadic. Putin said the agreements allowed Serbia to become a key link to guarantee long-term and reliable energy supplies to Europe (Interfax, January 25).

GazpromNeft has now turned its attention to Iranian oil assets. On February 19, Gazprom CEO Alexei Miller and Iranian officials tentatively agreed on joint gas-production in Iran, as well as on GazpromNeft’s participation in oil projects in Iran. The agreements were expected to be finalized by the end of April (Interfax, February 19; Tehran Times, February 26).

In the meantime, the Russian government has announced relatively modest plans to raise the country’s crude oil production. On March 14, Russia’s Economic Development and Trade Ministry announced a program to develop the country’s energy sector. The blueprint stipulates raising Russia’s crude oil production up to 560 million tons by 2015, 595 million tons by 2020, and 600 million tons by 2030, an increase from 492 million tons in 2007 (Interfax, March 14).

While the Russian government plans to increase the country’s oil production by some 20% by 2020, GazpromNeft aims to nearly triple its crude output by the same deadline. Therefore, to achieve this ambitious goal, GazpromNeft would need to take over significant assets currently controlled by other companies.