Page 6 - FSUOGM Week 24 2021

FSUOGM COMMENTARY FSUOGM

Rosneft brings new traders

on board at Vostok Oil

Rosneft is seeking partners with financing and marketing capabilities to take
the ambitious Arctic project forward

RUSSIA RUSSIAN oil giant Rosneft has brought on Brent, making it very valuable. “It should fetch
board two more traders for its Vostok Oil meg- a significant premium, perhaps $10 per barrel
WHAT: aproject in the Russian Arctic, the state-owned or more, on global markets if properly placed,”
Rosneft has agreed terms producer announced on June 10. Smith said.
to sell a further 5% stake Rosneft sold a 10% stake in the project, which The project’s equidistance between Europe
in Vostok Oil to Vitol and comprises a cluster of large oil and gas fields in and Asia “opens up significant arbitrage oppor-
Mercantile & Maritime. the north of the Krasnoyarsk region, to com- tunities,” the analyst continued. “However, the
modities trader Trafigura in December. It has size of Vostok Oil – production in the early 2030s
WHY: now signed a heads of terms (HoT) agreement to could reach 2mn bpd – means the flows of crude
The company needs transfer a further 5% to a joint venture between will need to be managed carefully.”
foreign investors to help Vitol and Mercantile & Maritime. The deal will Vostok Oil will involvement the construction
shoulder Vostok Oil's be closed once the parties secure necessary reg- of three airfields, two sea terminals, a railway,
huge cost and market its ulatory and corporate approvals. some 50 oil tankers and 3.6 GW of power gen-
supplies. Rosneft has touted Vostok Oil as the next eration capacity. Its oil will be shipped predomi-
frontier for the Russian oil industry, and ana- nately to Asia via the Northern Sea Route (NSR),
WHAT NEXT: lysts have compared the project’s scope with which is expected to become a major global trade
Vostok Oil's crude is that of the exploration of Western Siberia in the route as Arctic ice recedes with global warming.
extremely sweet, meaing 1970s and the US Bakken oil play over the past
it could trade at as much decade. The company estimates that Vostok Oil Further divestments
as a $10 per barrel could yield 1mn barrels per day of oil by 2027 Rosneft is in the midst of a divestment drive
premium to Brent. and eventually as much as 2mn bpd, along with to free up cash for Vostok Oil and optimise its
up to 50mn tonnes per year (tpy) of LNG. portfolio. The company has sold majority shares
Rosneft has sought out foreign investors to in a further four oil and gas producing subsid-
help shoulder Vostok Oil’s huge cost. The project iaries, Kommersant reported on June 9 citing
is valued by the company at between $70-150bn, sources.
depending on future oil prices. It also needs Rosneft divested a raft of other assets it
partners to provide the necessary marketing deemed non-core last year, mostly to private
and technical capabilities. In addition to traders, firm Neftegazholding. It has now shed a 100%
it has reached out to state-owned oil companies stake in RN-Stavropolneftegaz, a 51% share
in India and China. Earlier it began talks with in RN Ingushneft and a 68.7% interest in Ros-
potential contractors and suppliers for the pro- neft-Dagneft. It has also divested an 81.2%
ject, according to Reuters. position in Dagneftegaz, partly through its sale
Oil traders are generally reluctant to invest in at Rosneft-Dagneft, the parent company, and
production directly, but access to Vostok Oil will partly through the sale of direct shares.
give them a major long-term source of supply to The buyer of these assets is Tsentgeko, whose
meet growing demand in Asia. shareholders are Tatyana Morozova with 76%
“Definitely, the project is interesting to the and Dmitry Kamyshev with 23%, according to
companies focused on feedstock supply, trading Kommersant. Russia’s state-owned bank Sber-
and logistics with an extensive client base and bank also has 1% and the other shareholders
distribution channels around the world, those pledged their interests to the lender in return for
that consider the future need for ‘green’ oil sup- a loan to fund the purchase, the newspaper said.
ply,” Rosneft CEO Igor Sechin commented. Analysts say Rosneft’s recent sales mark a
“The addition of another major oil trader much-needed shift in its strategy towards value
to Vostok Oil is positive for shareholders, as over volumes. The assets transferred to Tsent-
it should help leverage the project’s uniquely geko are small, flowing only 18,000 bpd of oil.
high-quality crude and advantageous geo- “While this particular sale is minor, less than
graphical locations between Europe and Asia,” 1% of current production, the continued stream-
BCS Global Markets analyst Ronald Smith lining of Rosneft’s asset base is good policy,” BCS
commented. GM said on June 9, noting it would free man-
Vostok Oil’s fields contain oil that is very agement up to focus on major greenfield projects
sweet, with a tenth of the sulphur content of like Vostok Oil. ™

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