Page 148 - RusRPTOct22

The price will determine success. Although Shell is leaving the project, Japan’s Mitsui (12.5%) and Mitsubishi (10%) have already elected to remain on-board, while Gazprom will remain the controlling shareholder with 50%.
Although the deal appears to be set up only for Novatek, it is not clear to us that the company would anxious to enter into a project dominated by Gazprom. In the end, of course, price determines all.
Mikhelson stated the company intends to run a full audit of the asset, including geological reserves as well as the state of the liquefaction equipment, contract structures, and the like.
In any event, the size of the project means Novatek must at least take a close look at the opportunity: Novatek currently has a 50% stake in the 17.5mtpa Yamal LNG project, as well as 51% in the 0.66mtpa Cryogas-Vysotsk small-scale LNG plant, for a total of 9.1mpta of capacity. As such, adding a net 3.2mtpa from Sakhalin-2 would increase the company’s net LNG output by 35%.
● Lukoil
Lukoil to enter Gazprom Neft’s Evtrotek-Yugra upstream oil project,
reports Kommersant. In so doing, Lukoil would replace Spain’s Repsol, which withdrew from Russian projects in late 2021, selling its half of Evtrotek-Yugra back to Gazprom Neft in the process. Evtrotek-Yugra has 4 exploration licenses and 2 production licenses so far. The main asset is the Ervie field, which officially has an estimated 34mn tonnes of recoverable reserves (250mn bbl).
Matching balance sheet capacity with undeveloped reserves: This deal looks good for both companies. In the case of Gazprom Neft, it has substantial growth opportunities, but would need many years to develop them organically based on its own balance sheet. Lukoil, on the other hand, has a quite mature portfolio of exploration and production licenses, with only a small handful of greenfields and significant exploration and development opportunities, but a very strong balance sheet. Thus, this partnership allows the two companies to match complementary strengths and, additionally, pool technology and expertise, given that importing that in the form of foreign partners is now all but impossible. Note that Evtrotek-Yugra is not yet producing, but serious development is in the planning stage. We think that initial 250mn bbl of recoverable reserves is probably a very conservative estimate, with that number likely to grow as further exploration and full-scale development commences.
● Other
148 RUSSIA Country Report October 2022 www.intellinews.com