Gazprom Neft Bids $800 Million to Rival TNK-BP on Kazakh Border

Vadim Yakovlev

Interview with the First Deputy CEO Gazprom Neft, Vadim Yakovlev

Bloomberg

OAО Gazprom Neft, the oil arm of Russia’s state-run gas exporter, is spending $800 million to buy reserves and expand in the region on the Kazakh border that provides more than a quarter of larger rival TNK-BP’s output.

Gazprom Neft will add 184 million metric tons (1.35 billion barrels) of oil equivalent to its reserves with the acquisition of three fields in the Orenburg region by year-end, said First Deputy Chief Executive Officer Vadim Yakovlev.

“Competition for reserves is very high,” Yakovlev said in an interview in his Moscow office. Orenburg offers “proximity to markets, good quality reserves, infrastructure in place and lower capital and operational expenditures than Western, let alone, Eastern Siberia.”

Gazprom Neft, Russia’s fifth-largest oil producer, aims to almost double output to 100 million tons of oil equivalent by 2020. To do so, the company is expanding abroad with units in Venezuela, Serbia, Iraq and Africa, and adding licenses, some from its parent, OAO Gazprom. West Siberia, Russia’s main producing area has seen declines, while eastern and Arctic developments are challenging and costly.

TNK-BP, the Russia venture half owned by BP Plc, has relied on Orenburg as one of its main areas for growth. The third-biggest Russian oil producer, TNK-BP acquired three licenses in the region with estimated resources of 149 million barrels of oil equivalent in the first half of the year. Its mature

Orenburg fields yielded 4 percent growth in the period.

50 Million Tons

Gazprom Neft paid 3.58 billion rubles ($114 million) to buy about 62 percent of the eastern part of the Orenburg field from Gazprom, Yakovlev said. The field may hold 98 million tons of crude and condensate and 63 billion cubic meters of gas, while exploration, especially of lower-lying resources, may add 50 million tons of reserves within five or seven years, he said.

“The eastern part of the Orenburg field is an anchor project, a platform for further expansion of Gazprom Neft in the region” Yakovlev said. The acquisition, approved by the board, may be completed by end-October or in November, he said. “Simultaneously, we are entering two more assets in the region.”

Gazprom Neft bought the rights for the Tsarichanskoye field earlier this month and will complete the acquisition of Kapitonovskoye from a local group by the end of the year. The company is financing the purchases from its own cash, he said.

The company is spending about 60 cents per barrel of oil equivalent, he said.

$1 Billion Investment

The three fields may double production within three years and triple to about 5 million tons of oil equivalent within five years, Yakovlev said.

“We plan to maintain output at that plateau level from 2017 until 2022,” he said. Output will total 1.7 million tons of oil equivalent this year, with about 1 million tons of that in crude.

Gazprom Neft plans to invest about $200 million annually in the three assets for up to five years starting from 2012, he said. The Kapitonovskoye and Orenburg fields are already in production, yielding light crude. Tsarichanskoye is nearing the start of commercial output.

Gas and oil from the Orenburg field will be supplied to Gazprom’s local processing plant. Crude export from the region are also possible, he said.

Gazprom Neft is looking at further assets in the region, Yakovlev said. The producer plans to develop reserves on its own because the region “is absolutely clear for us in terms of geology and technology.”

“The Orenburg region takes a special place and is one of the most significant points for growth in the middle term,” Yakovlev said. “It helps us to implement our strategy to boost output by 2020.”