Page 4 - FSUOGM Week 47

FSUOGM COMMENTARY FSUOGM

Rosneft brings on board first

foreign partner at Vostok Oil

Rosneft is set to pass a 10% stake to long-time trading partner Trafigura

RUSSIA RUSSIAN state oil company Rosneft looks important more for getting the process started,”
finally set to succeed in attracting a foreign they said.
WHAT: partner to its flagship Vostok Oil project in the Total investment over the project’s lifespan is
Rosneft's board of Arctic, which it says will one day yield over 2mn expected to be RUB8.5 trillion ($100bn), “so the
directors has approved barrels per day (bpd) of oil. desire to attract capital and expertise for risk-di-
the transfer of a 10% Rosneft said last week that its board of versification purposes is understandable,” BCS
share in Vostok Oil to directors had agreed on the sale of a 10% stake GM said.
Trafigura. in its Vostok Oil LLC subsidiary to Trafigura Rosneft and Trafigura are already close part-
for an undisclosed sum. According to Kom- ners, with the former relying on the latter to
WHY: mersant, the subsidiary currently owns only export the bulk of its sea-bound oil exports. They
Rosneft needs foreign the little-explored West-Irkinsky block in the are also part of Nayara Energy, a joint venture
partners to bring their remote north of Russia’s Krasnoyarsk region. that owns India’s second-largest refinery in Vad-
expertise and investment However, the Vostok Oil project is anticipated inar, with a throughput capacity of over 400,000
to the ambitious project. to include a cluster of other fields and acreage bpd. The plant could be a potential recipient for
in the vicinity, enabling Rosneft to establish Vostok Oil’s crude.
WHAT NEXT: its first major hub for Arctic oil and LNG Rosneft has said before that the project will
Bringing on board an production. primarily serve Asia-Pacific markets, helping
established name like The pair are “at the advanced stage of negoti- to explain why it has reportedly tried to attract
Trafigura should help ations” on closing the transaction, Trafigura was Indian and Japanese companies in the past as
Rosneft attract other quoted as saying by Kommersant. investors. Indian firms ONGC, Oil India and
international partners. Vostok Oil is set to combine the fields in Ros- Indian Oil Corp already hold a 49.9% position
neft’s Vankor cluster – Vankorskoye, Lodoch- at Vankor.
noye, Suzunskoye and Tagulskoye – with the By bringing on board a respectable interna-
Paiyakha fields held by Neftegazholding, a pri- tional name like Trafigura, Rosneft should find
vate oil firm owned by former Rosneft presi- it easier to find other investors.
dent Eduard Khudainatov. Other Rosneft assets The 10% sale could be worth around $7bn,
including West-Irkinsky and potentially the Bai- Vedomosti reports, citing a source familiar with
kalovskoye field it operates with BP will also be the deal. As an investor, Trafigura could go so far
brought into the fold. as to provide loans for the project, although the
Production is expected to reach 25mn tonnes trader is saddled with $30.8bn and is looking to
per year (500,000 bpd) by 2024, rising to 1mn deleverage itself.
bpd by 2027 and 2.3mn bpd by 2030, and Ros- There is still a lot of uncertainty about
neft has also suggested that up to 50mn tpy of Vostok Oil’s prospects, primarily given the lack
LNG could also be developed from the fields’ of understanding of its reserves. Save for the
gas. These supplies will be delivered to markets Vankor fields, most of its assets are still at an early
on tankers via Russia’s Northern Sea Route. stage of appraisal.
Rosneft estimates Vostok Oil’s liquids Furthermore, the fields are situated in a very
resource base at 6bn barrels of oil equivalent remote area with difficult climatic conditions,
(boe), although its fields have not been inde- requiring significant infrastructure costs. This
pendently appraised, creating doubts about the could dissuade investors, in light of current low
company's lofty targets for future output. oil prices. The long-term outlook for oil demand
is also bearish, as a result of global efforts towards
Project 'a go' decarbonisation.
Analysts at BCS Global Markets (GM) com- On the other hand, Vostok Oil is set to enjoy
mented that the deal was good for Rosneft’s stock strong support from the Russian government,
“more for signalling that the ambitious project is which is eager to ensure Russia retains its domi-
‘a go’ than for the size of the investment, which nant position in oil markets after OPEC cuts are
itself has yet to be fully determined.” eased. This was shown already when the govern-
“Attracting a significant amount of foreign ment recently granted tax breaks at the Vankor
investment to the Vostok Oil project has been field, which should cross-subsidise development
a Rosneft goal from day one, and this deal is of Vostok Oil’s other assets. ™

P4 www. NEWSBASE .com Week 47 25•November•2020