the RUSSIA oil & gas competitive intelligence report - Report Buyer

2010 

www.businessmonitor.com 

the RUSSIA oil & gas 

competitive intelligence report 

“Well Positioned for Global Recovery” 

Published by Business Monitor International Ltd.

RUSSIA OIL AND GAS 

COMPETITIVE 

INTELLIGENCE 

REPORT 2010 

Part of BMI's Industry Report & Forecasts Series 

Published by: Business Monitor International 

Publication Date: October 2010 

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Russia Oil and Gas Competitive Intelligence Report 2010 

© Business Monitor International Ltd Page 2


CONTENTS 

Competitive Landscape Analysis ................................................................................................................... 5 

Table: Key Domestic And Foreign Companies In The Russian Oil And Gas Sector .............................................................................................. 6 

Overview/State Role ............................................................................................................................................................................................... 7 

Licensing And Regulation ...................................................................................................................................................................................... 7 

Government Policy ................................................................................................................................................................................................ 9 

International Energy Relations ............................................................................................................................................................................ 10 

Gas Transit .......................................................................................................................................................................................................... 14 

Oil Transit ........................................................................................................................................................................................................... 18 

Table: Key Upstream Players .............................................................................................................................................................................. 19 

Key Downstream Players ..................................................................................................................................................................................... 20 

Company Profiles ........................................................................................................................................... 21 

Gazprom ................................................................................................................................................................................................................... 21 

Market Position ................................................................................................................................................................................................... 22 

Strategy ................................................................................................................................................................................................................ 22 

Latest Developments ............................................................................................................................................................................................ 24 

Gazprom Neft (formerly Sibneft) ............................................................................................................................................................................... 29 


Strategy ................................................................................................................................................................................................................ 30 


Rosneft ...................................................................................................................................................................................................................... 32 


Strategy ................................................................................................................................................................................................................ 33 


Lukoil ........................................................................................................................................................................................................................ 36 


Strategy ................................................................................................................................................................................................................ 37 


TNK-BP .................................................................................................................................................................................................................... 40 


Strategy ................................................................................................................................................................................................................ 41 


Tatneft ....................................................................................................................................................................................................................... 45 


Strategy ................................................................................................................................................................................................................ 46 


Total.......................................................................................................................................................................................................................... 47 


Strategy ................................................................................................................................................................................................................ 48 


Novatek ..................................................................................................................................................................................................................... 50 


Strategy ................................................................................................................................................................................................................ 51 


Russneft..................................................................................................................................................................................................................... 53 


Strategy ................................................................................................................................................................................................................ 54 

Recent Developments ........................................................................................................................................................................................... 54 



Surgutneftegaz – Summary........................................................................................................................................................................................ 56 

Sistema – Summary ................................................................................................................................................................................................... 56 

Itera – Summary ....................................................................................................................................................................................................... 57 

Royal Dutch Shell – Summary................................................................................................................................................................................... 57 

ExxonMobil – Summary ............................................................................................................................................................................................ 57 

Transneft – Summary ................................................................................................................................................................................................ 58 

Sakhalin Energy – Summary ..................................................................................................................................................................................... 58 

Wintershall – Summary ............................................................................................................................................................................................. 59 

BP – Summary .......................................................................................................................................................................................................... 59 

Lundin Petroleum – Summary ................................................................................................................................................................................... 60 

OMV – Summary ....................................................................................................................................................................................................... 60 

Irkutsk Oil Company – Summary .............................................................................................................................................................................. 60 

Aladdin Oil & Gas – Summary ................................................................................................................................................................................. 61 

PetroNeft – Summary ................................................................................................................................................................................................ 61 

Alliance Oil – Summary ............................................................................................................................................................................................ 62 

Others – Summary .................................................................................................................................................................................................... 62 

Market Attractiveness Analysis .................................................................................................................... 64 

Russia Energy Market Overview ............................................................................................................................................................................... 64 

Oil & Gas Infrastructure .......................................................................................................................................................................................... 67 

Oil Refineries ....................................................................................................................................................................................................... 67 

Table: Refineries Of 50,000b/d Capacity Or Greater In Russia .......................................................................................................................... 69 

Oil Terminals/Ports ............................................................................................................................................................................................. 70 

Oil Pipelines ........................................................................................................................................................................................................ 70 

LNG Terminals .................................................................................................................................................................................................... 72 

Gas Pipelines ....................................................................................................................................................................................................... 74 

SWOT Analysis ............................................................................................................................................... 77 

Russia Business Environment SWOT ................................................................................................................................................................... 77 

Risk-Reward Ratings ..................................................................................................................................... 78 

Business Environment Ratings .................................................................................................................................................................................. 78 

Central/Eastern Europe Region ........................................................................................................................................................................... 78 

Composite Scores................................................................................................................................................................................................. 78 

Table: Regional Composite Business Environment Rating .................................................................................................................................. 79 

Upstream Scores .................................................................................................................................................................................................. 80 

Table: Regional Upstream Business Environment Rating.................................................................................................................................... 80 

Russia Upstream Rating -- Overview ................................................................................................................................................................... 81 

Russia Upstream Rating -- Potential Returns ...................................................................................................................................................... 81 

Russia Upstream Rating -- Risks To Potential Returns ........................................................................................................................................ 81 

Downstream Scores ............................................................................................................................................................................................. 82 

Table: Regional Downstream Business Environment Rating ............................................................................................................................... 82 

Russia Downstream Rating -- Overview .............................................................................................................................................................. 83 

Russia Downstream Rating -- Potential Returns .................................................................................................................................................. 83 

Russia Downstream Rating -- Risks To Potential Returns ................................................................................................................................... 83 

Business Development Directory ................................................................................................................. 84 



Competitive Landscape Analysis 

• The Russian gas industry is dominated by Gazprom, which is effectively a downstream gas 

monopoly that also accounts for around 84% of upstream production. In 2009, Gazprom 

produced 462bcm, the lowest level in history. Gazprom’s oil arm Gazprom Neft is now a major 

producer, following the acquisition of Yukos’ assets in 2007-2009. 

• The oil sector is more diversified. State-run Rosneft is the main producer, but privately owned 

Surgutneftegaz, Lukoil, TNK-BP and large regional producers such as Tatneft and Bashneft, are 

not too far behind. The degree of private companies’ connections with the Kremlin varies, but 

overall inter-company competition is more limited than it would initially appear. 

• The Russian government has moved forward its plans to privatise a larger share of Rosneft. On 

July 26, the Finance Ministry included the country's largest oil producer in the list of nine 

companies earmarked for partial privatisation in 2011-2013. Up to 24.16% of Rosneft could be 

sold, leaving the state with the 51% controlling stake. 

• Many leading domestic independents, such as Russneft and Urals Energy, have been fashioned 

by high-profile businessmen in the wake of the state asset sell-off in the 1990s. They are now, 

however, threatened by takeovers from the state-run majors owing to debt over-exposure, often 

in non-oil-related activities. Sibir Energy, one of the largest independent producers, was taken 

over by Gazprom Neft in mid-2009. 

• BP has shares in the TNK-BP venture, which is the main IOC interest. BP is boosting its Russian 

focus following the Macondo spill. ExxonMobil, Royal Dutch Shell and BP are members of 

consortia developing the Sakhalin fields. 

• Lukoil’s oil output in January-September 20009 totalled around 1.83mn b/d. The group has an 

estimated 18% share of refining capacity and 1,815 service stations in Russia. 

• US major ConocoPhillips is selling its entire 20%Lukoil stake. The decision fits ConocoPhillips' 

stated asset divestment plan, first announced in October 2009, after the company's investment in 

Lukoil failed to meet expectations. The company first denied any Lukoil divestment and then 

said only 10% will be sold. 

• Surgutneftegaz’s 2008 crude production was 1.24mn b/d, while gas output totalled 14.1bcm. 

Downstream assets include the 400,000b/d Kirishi oil refinery and around 300 service stations in 

north-western Russia. 



Table: Key Domestic And Foreign Companies In The Russian Oil And Gas Sector 

Company 

2009 Sales 

(US$bn) 

% share 

of total 

sales 

No. of 

employees 

Year 

established 

Total 

Assets 

(US$mn) Ownership (%) 

Gazprom 116.1* na 445,000 1992 na 

Lukoil 107.7* na 150,000 1991 59,632 

91.1% state; 2.5% 

E.ON Ruhrgas 

20.6% V. Alekperov; 

12.06% Other mngt; 

TNK-BP 34.7 na 90,300 2003 11,093 50:50 BP, ARR 

Surgutneftegaz 18.0* na 86,108 1993 na Employee-owned 

Gazprom Neft 24.2 na 55,000 1995 8,342 100% Gazprom 

Rosneft 46.8 na 74,000 1993 59,837 75.2% state 

Tatneft 7.5 na 104,000 1955 na 36% Tatarstan govt 

Russneft 4.5* 30e na na na 75% Basel 

e = estimate, na = not available/applicable. Source: Company data 2009, BMI; *2008 figures 



Overview/State Role 

The oil sector is concentrated in the hands of several domestic companies, with limited direct IOC 

involvement. The biggest crude producers, exporters and refiners are state-run Rosneft and Gazprom 

Neft, plus privately owned Lukoil, Surgutneftegaz, TNK-BP and Tatneft. Following US major 

ConocoPhillips’ divestment of its 20% stake in Lukoil in 2010, BP is the only foreign palyer with a large 

interest in Russian oil producers through the TNK-BP JV. The oil pipeline system is managed by staterun 

Transneft, the gas trunklines by Gazprom. Foreign upstream oil ventures traditionally have been 

carried out through the Zarubezhneft state vehicle, although the main Russian producers are increasingly 

venturing abroad directly. 

Gas activities are controlled by national giant Gazprom, which dominates production and holds a 

monopoly on exports and, in practice, distribution. Restructuring has been discussed for years with little 

progress, although domestic gas prices are being very gradually adjusted to international levels, a process 

that started in the mid 2000s. There were plans to merge Gazprom with Rosneft, but the deal was 

abandoned. 

Licensing And Regulation 

There are three proposed changes to Russia's tax structure. First, from the beginning of 2011, Russia 

intends to increase the mineral extraction tax (MET) for both oil and gas production, with the increase in 

the gas MET having been set at 61%. The MET rate is currently RUB419/tonne, adjusted according to the 

price of Urals crude, the field depletion rate, and the US$/RUB exchange rate. The proposed MET 

increases will be inflation-adjusted. Second, Russia has proposed increasing the tax on refined products 

exports, by an amount equivalent to 60% of the crude export duty. The third and final measure being 

considered is an increase in the gasoline excise tax by RUB1 per litre over the period 2011-2013. 

On December 1 2009, the Kremlin scrapped export duty on 13 main East Siberian projects and all 

projects in the Black and Okhotsk seas. Rosneft said in November 2009 that it expects the tax holiday for 

East Siberian fields, which includes Vankor, Verknechonsk and Talakan, to last until 2013-2015, bringing 

significant savings to the industry. The government currently plans to end the duty in 2011. Meanwhile, 

the tax exemptions for Black Sea production have been granted for up to 15 years or until 20mn tonnes 

(146.7mn bbl) of oil have been produced, while tax exemptions for producers in the Sea of Okhotsk in the 

Far East would be granted for up to 15 years or until 30mn tonnes (220mn bbl) of oil have been produced. 

The oil export duty for fields elsewhere in Russia increased by 17% in December 2009 to US$271/tonne, 

equivalent to US$37.10/bbl. 

According to anonymous government and industry sources cited by Vedomosti in March 2010, the export 

duty holiday on the main East Siberian oil fields will remain in place in 2010 but may be revoked in 2011. 

According to Vedomosti's sources, the re-introduction of export duties on East Siberian crude would cost 

the major producers in the region, namely Rosneft, Surgutneftegaz and TNK-BP, over US$2bn in total. 



While the policy shift would reduce the profitability of the fields, it is unlikely to have an impact on the 

progress of East Siberian upstream developments in the short term. 

To stimulate projects in the Caspian Sea, Russia has exempted the first 730mn bbl of oil produced in the 

region from mineral extraction tax. However, Lukoil's president, Vagit Alekperov, has also been calling 

for an export tax holiday for offshore fields, the fiscal incentive currently enjoyed by operators in East 

Siberia. At the Yuriy Korchagin opening ceremony, Prime Minister Vladimir Putin said he would 

consider Alekperov's request and in July 2010 Lukoil said that it had reached a preliminary agreement 

with the finance ministry to halve export duties on North Caspian oil. Any lasting fiscal concessions, 

however, are unlikely. First, the Russian finance ministry is strongly opposed to any further loss of state 

revenue through concessions to oil companies. Second, the shallow waters in the North Caspian do not 

present the same logistical and technological challenges as the remote East Siberian deposits. Third, 

Lukoil, which would stand to be the main beneficiary of any further tax breaks, does not enjoy the same 

influence in the Kremlin as its state-connected rivals Rosneft and Surgutneftegaz, both of which are big 

East Siberian players. 

On January 1 2009, the Russian government reduced MET to encourage the reinvestment of corporate 

profits into E&P. The amendment to the tax code, agreed in May 2008, increased the tax-free MET 

threshold from US$9/bbl to US$15/bbl. According to the country’s Finance Minister Alexei Kudrin, this 

would allow oil producers to save over US$4bn annually. 

According to the Ministry of Natural Resources and Environment (MNRE), the MET and export duties 

account for about 95% of oil producers’ tax payments, with the tax burden exceeding 68% of their gross 

revenue. Such a revenue-based system is effective for rent collection and works well for mature projects 

with low finding, development and lifting costs but fails to encourage new developments. The ministry 

estimates that if Russia implements the new fiscal measures, the country could increase production to a 

sustainable 10.2mn b/d by 2013. If it does not reform its tax framework, however, its own projections 

show production falling to 9mn b/d by 2013. The structure of the tax regime was partly responsible for 

the fall in the country's oil production in 2008, the first annual decline in eight years, which occurred 

despite a 30% increase in upstream capex. 

In July 2009 the Russian government announced that it would not increase gas production and export 

taxes as had been earlier suggested by the Finance Ministry. Russia has been assessing ways to source 

extra cash to offset declining revenues in the recession. The Finance Ministry had therefore proposed to 

increase the tax on gas production from RUB147 (US$4.6) per thousand cubic metres (mcm) to 

RUB162/mcm and to increase the gas export duty from 30% to 35%. It was estimated that the 

government would yield an additional RUB60bn (RUB53bn via export tax and RUB7bn via extraction 

tax) through the suggested tax increases, most of which would be paid by Gazprom. 



In the past, Gazprom has successfully managed to fend off attempts by the Finance Ministry to increase 

its tax burden by arguing that it already faces extremely high new-generation E&P costs. This time, 

Gazprom has suggested that rather than increasing tax on production and exports, an import tariff should 

be introduced. Taxing the gas that Gazprom purchases from Central Asia (and resells to Europe) would 

likely cost the company less as the volumes it buys from abroad are significantly lower than its domestic 

output. Putin has responded to Gazprom's proposal saying that as the introduction of import tariffs were 

'not just an economic question', the government would look into the issue at a later stage. 

Offshore Exploration 

Russia may relax rules effectively limiting offshore E&P in the country to Rosneft and Gazprom, 

according to a report by the Moscow Times newspaper in March 2010. The report, which cited deputy 

energy minister Sergei Donskoy, said the proposal would allow subsidiaries of the two companies to join 

them in offshore exploration and could lead to IOCs also becoming involved. 

In the Moscow Times article Donskoy claimed that the NREM believes Gazprom and Rosneft have 

insufficient resources to develop Russia's continental shelf on their own. Under a plan drafted by the 

ministry, the companies would be allowed to share access with their subsidiaries and could farm out a 

stake of up to 50% in offshore projects to foreign companies. The proposal would also allow any of the 

subsidiaries to develop offshore fields on their own or in partnership with other companies. However, the 

newspaper also reported that it is unclear whether the proposal has been submitted to the Russian cabinet. 

Under legislation passed in 2008, offshore fields in Russia can only be developed by companies in which 

the government owns a stake of 50% or greater. In addition, companies applying to work on the fields 

must have a five-year record of working on such projects, effectively limiting participation to Gazprom 

and Rosneft. It is arguable that this has damaged Russian investment in offshore areas. The two 

companies invested only RUR56.4bn (US$1.9bn at 2010 rates) in E&P offshore Russia in 2008, a rate 

that Donskoy claimed would mean ministry targets for offshore areas would take 165 years to fulfil. 

Government Policy 

Under the Energy Strategy 2030, Russia is expecting to sustain its oil output at roughly 2009 levels and 

dramatically boost gas production. The plan, drafted in August and approved in November 2009, calls for 

annual production of 10.6-10.7mn b/d of oil and 885-940bcm of gas by 2030. Exports of crude and oil 

products are expected to rise to 6.6mn b/d while gas sales abroad are to reach 349-368bcm by that year. 

Most of the extra gas exports are expected to be absorbed by Asia. To achieve the set output growth, the 

government wants an annual investment of US$28.4bn (late 2009 exchange rate) in the oil sector and 

US$27bn in the gas sector. The oil output target is theoretically achievable, especially after a downward 

revision of the August 2009 draft. The level of capex outlined in the plan, however, is unlikely to be 

sufficient. Gas production goals look extremely ambitious outright given the current volumes and 

dynamics of the global supply and demand. 



The government is moving forward plans to privatise a larger share of Rosneft. In July 2010, the Finance 

Ministry included the country's largest oil producer in the list of nine companies earmarked for partial 

privatisation in 2011-2013 in an attempt to eliminate the budget deficit. Up to 24.16% of Rosneft could be 

sold, leaving the state with the 51% controlling stake. As the jewel in the Russian state sector's crown, the 

Rosneft stake could provide around RUB500bn (US$16.5bn) for the treasury, or half the overall 

divestment target. A non-controlling stake in Transneft may also be sold, although government officials 

have been given conflicting signals. 

In July 2008, Russia’s state market regulator, the Federal Financial Markets Service (FFMS), put a 25% 

cap on the proportion of shares domestic mineral resources companies, and other ‘strategic’ industries, 

can list abroad. Moreover, under the new rules, only 5% of the energy companies’ total sales are allowed 

to come from operations in foreign countries. This will push Russian companies to raise finance at home, 

in line with President Dmitry Medvedev’s plans to turn Moscow into a major financial centre by 2020. 

The head of the FFMS said at the time that the companies’ shares can, and therefore must, be traded in 

roubles in Russia, adding that all the necessary conditions to enable that process were in place. The ruling 

is the most explicit recent step in the Kremlin’s programme of consolidating control over Russia’s 

mineral resources and suggests further downside risks to an investment climate already marred by a poor 

licensing, privatisation and regulatory structure. 

As the extent of the global economic meltdown became clear in September 2008, Russia's main producers 

collectively approached the Kremlin for assistance. The CEOs of Lukoil, TNK-BP and Rosneft plus 

Gazprom’s Deputy Chairman Alexander Ananenkov wrote to Prime Minister Vladimir Putin asking for 

state credit ‘to pay for foreign debts’. Although the companies did not specify the required sum, they 

argued that the overall debt volume of the Russian energy sector was around US$80bn and required state 

action. The companies also requested Putin to order the finance ministry and the central bank to work out 

a mechanism of financing strategic projects with the help of 'state targeted credits'. 

The government has signalled its intention to provide US$50bn from Russia's gold and foreign exchange 

reserves to help refinance domestic corporations' foreign debt and grant selected tax holidays. Although 

these moves will be supportive, they may not be enough on their own to help Russia's major oil producers 

ride out the current crisis. Each of the major companies is therefore also adopting its own strategies to 

minimise the negative repercussions of the economic downturn. 

International Energy Relations 

South Korea 

Gazprom and its South Korean counterpart Kogas signed an MoU in June 2009 to jointly study the 

options for delivering Russian gas to South Korea. In particular, the MoU will look at ways of supplying 

South Korea with gas from the Sakhalin projects. According to Platts, under the terms of a previous 



agreement signed by Kogas and Gazprom in September 2008, the Korean company plans to import 

10bcm per annum of Russian gas between 2015 and 2045. 

Following the launch of the Gazprom-led Sakhalin-II project in April 2009, Kogas began receiving 

Russian LNG under a 2.2bcm (1.6mn tpa) supply contract. Kogas, one of the world’s largest gas buyers, 

is now looking to boost these Russian gas imports significantly by expanding the regional LNG export 

capacity and/or ensuring the extension of the planned Sakhalin-Khabarovsk-Vladivostok gas pipeline into 

the Korean peninsula. An MoU on jointly constructing an LNG terminal on Russia’s Pacific coast was 

signed by Gazprom and Kogas in September 2009. Additionally, two pipeline options between Russia 

and South Korea are currently being evaluated: the overland pipeline via North Korea and the direct 

undersea pipeline. The first option suffers from severe geopolitical risks while the second option presents 

partners with formidable technological and financial challenges. 

In April 2010 Gazprom’s head of foreign projects, Stanislav Tsyganov, said that South Korea and Russia 

were expected to begin a new round of talks in mid-April on a gas interconnector between the countries. 

However, it is unclear what route the gas interconnector could now take, following a marked deterioration 

in relations between the two Koreas in mid-2010. Tsyganov also poured cold water on the subsea route 

plans, claiming that the shallowness and uneven surface of the seabed in the area makes the project highly 

challenging from a technical perspective. The numerous difficulties with both pipeline options suggest to 

us that no concrete decision will be reached during this round of talks. Longer term, we believe the 

pipeline will not be built until the political unification of the Korean peninsula. 

China 

In February 2009, Moscow and Beijing signed a major energy agreement that will see the Russian state 

oil sector receive US$25bn in Chinese loans in return for a commitment to sell China 15mn tpa of crude 

(300,000b/d) between 2011 and 2030. The agreement was made up of four deals. The first two concern 

long-term loans to be provided by the China Development Bank to Rosneft, which will receive US$15bn, 

and oil pipeline monopoly Transneft, which will receive US$10bn. The third is a 20-year oil supply 

contract between China National Petroleum Corporation (CNPC) and Rosneft, and the fourth is an 

agreement between CNPC and Transneft regarding the construction and exploitation of the China-bound 

branch of the East Siberia-Pacific Ocean (ESPO) pipeline. 

Although the financial terms of the deals were withheld, two unnamed Russian government sources 

unofficially provided details. According to an official in the Russian energy ministry, quoted by 

Vedomosti, the price of the oil supplied will be calibrated monthly, based on the Platts and Argus trade 

quotes for the Kozmino terminal. A high-level official quoted by Reuters reported that the interest rates of 

the loans will be pegged to LIBOR and will fluctuate between 5% and 5.5%. According to Russian 

energy minister Sergei Shmatko, Rosneft and Transneft will spend the Chinese loans in two main areas: 

ESPO and 'corporate development', which is likely to imply debt management. 



Norway 

Russia and Norway have agreed to settle a dispute over their maritime border in the Barents Sea, signing 

a treaty in September 2010. The dispute, which centred on 176,000sq km of sea, had prevented the area 

from being fully opened up to oil and gas exploration. The resolution of the dispute will boost efforts to 

develop the oil and gas resources of the Barents Sea. 

The disagreement between the two countries, which dates back to around 1970, was based on conflicting 

claims to an area of around 176,000sq km in the centre of the sea. Norway based its claim on the 'median 

line' principle outlined in the UN Convention on the Territorial Sea and Contiguous Zones (1964) and the 

UN Convention on the Law of the Sea (UNCLOS, 1982), which stated that the maritime border should be 

drawn equidistantly between the two countries. The Soviet Union, and later Russia, countered that 

Russia's size relative to Norway dictated that it should receive a proportionally larger share of the sea and 

that it had claimed the area under dispute since 1926 using the meridian line rather than the median. 

The treaty includes provisions for cooperation in the development of hydrocarbons in the case of any new 

discoveries being made that straddle the demarcation line. The two sides will also cooperate on 

determining the outer limit of the continental shelf in accordance with UNCLOS. 

Qatar 

In a March 2010 press statement Gazprom said that Qatar had expressed interest in becoming involved in 

projects in the Yamal Peninsula at a working meeting between Gazprom's management committee and 

the Qatari Prime Minister Sheikh Hamad Bin Jassem Bin Jabor al-Thani. According to Gazprom, the two 

sides discussed potential cooperation in LNG transactions and swap deals between LNG and pipeline gas 

in the European and Asia-Pacific markets. In addition Gazprom claimed that the Qatari delegation had 

expressed interest in projects in the Yamal Peninsula, particularly in the possibility of commercialising 

the Tambeyskoe gas fields through the Yamal LNG project. 

Qatar's discussion of gas cooperation with Russia will sound worrying to European gas consumers, which 

have taken advantage of the changing differential between LNG and pipeline gas prices to drive down the 

cost of energy imports. By cooperating over pricing the two countries could benefit as European gas 

demand recovers in the aftermath of the global economic downturn. 

Belarus 

Russia and Belarus have had several disputes over energy supplies and pricing since 1991 when the latter 

became independent. As a former Soviet Union country, in the early 2000s Belarus received gas at a price 

of around US$46/mcm from Russia, a figure far below the market rate. In late 2006, however, as part of a 

more general policy of reducing energy subsidies to former Soviet satellites, Russia announced that it 

would increase gas prices, prompting Belarus to introduce an oil transit fee that led to Russia temporarily 

cutting off its supplies. 



Under a deal to solve the crisis, Belarus agreed that Russia would increase gas export prices to 

US$100/mcm rather than the initially planned US$200/mcm. The price reportedly increased to 

US$119/mcm in 2008. In return for these subsidised rates, Belarus allowed Gazprom to purchase 12.5% 

of its state gas transit company Beltransgaz annually from 2008 to 2010 for a total payment of 

US$2.5bn. Gas prices continued to rise in 2009, averaging US$150/mcm. During the winter period of 

peak demand, prices rose further from US$121.98/mcm in Q409 to US$169.22/mcm in Q110. In 

response, Beltransgaz started paying for gas at the lower rate of US$150/mcm, the average 2009 price. 

Gazprom claims that Beltransgaz owes US$137.49mn for gas imports in the peak period of Q110. This 

amount is set to increase, and Gazprom estimates that at this rate Belarus's gas debt could reach 

US$500mn by the end of 2010. 

In BMI’s view the current situation is unsustainable and is likely to lead to a renewed flare-up of the two 

countries’ long-running dispute unless Belarus agrees to pay the higher price demanded by Russia. One 

possible outcome is that Belarus will offer Russian companies an increased stake in its main energy 

infrastructure companies, most likely in Beltransgaz and Belarus’s Mozyr refinery. 

Kazakhstan 

Russia and Kazakhstan in September 2010 agreed to start jointly developing the Imashev gas and 

condensate field, which straddles the border of the two countries. The move follows a five-year period of 

near inactivity at the field, following a deal in January 2005 demarcating the Russia-Kazakhstan border. 

This progress on the field's development is a sign of Russia and Kazakhstan's willingness to cooperate on 

the development of shared resources. 

The Imashev field is located on the border between Russia's Astrakhan Oblast and Kazakhstan's Atyrau 

Province near the Caspian Sea. The field is Kazakhstan's second largest gas field after Karachaganak, 

according to Kazakh news agency IRBIS, but it has not been developed owing to a dispute over the 

border with Russia. In January 2005, however, the two countries signed a border demarcation agreement 

under which Kazakhstan ceded a border village covering part of the field to Russia, in return for territory 

elsewhere and an agreement to develop the field jointly with Russia. 

Following the Seventh Forum of Russia-Kazakhstan Inter-Regional Cooperation held in Ust- 

Kamenogorsk on September 6-7 2010, the two countries announced that they have now agreed to survey 

the field's reserves and prepare it for development. Russia's ITAR-TASS news agency reported that the 

field has estimated reserves of 128.7bcm of gas and 20.7mn tonnes of gas condensate, equivalent to 

186.6mn bbl. Kazakh oil minister Sauat Mynbayev said that the field will be the first to be developed on 

the territory of the two states. 

Others 

In May 2009, Japan and Russia signed a raft of energy cooperation deals. The deals include a joint oil 

exploration agreement, an accord that will see Russia supply enriched uranium to Japan, and a MoU to 



look at ways of transporting gas from Vladivostok to Japan, with additional deals likely to be signed in 

future. 

Gas Transit 

Executives from US oil majors have accompanied US President Barack Obama on his state visit to 

Moscow in July 2009, holding negotiations over expanding their presence in Russia. Neil Duffin, head of 

ExxonMobil project development unit, told Reuters during the trip that the company wanted Russia to 

make sweetening amendments to its subsoil law. 

Ukraine 

As a result of pricing, payment and transit disagreements, Russia cut off gas supplies to Ukraine on 

January 1 2009, causing a knock-on effect on European flows by January 7. Bitter wrangling between 

Moscow and Kiev ensued while supply disruptions in Eastern and south-eastern Europe reached crisis 

point. After a number of false starts, the flow of gas was eventually restored on January 20. Tense 

negotiations between the two countries over gas-related debts and prices continued throughout 2009 

before an uneasy truce between Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia 

Tymoshenko was established in November of that year. While the likelihood of a new gas supply cut in 

the winter of 2009/10 is significantly lower, the reputations of both countries as a reliable energy supplier 

and a transit state respectively have taken a battering, and the dispute has encouraged the EU to accelerate 

its gas supply diversification programme. 

Gazprom and Ukraine's state-owned Naftogaz in November 2009 agreed to reduce Ukraine's gas imports 

in 2010 to 33.75bcm, down from the previously contracted 52bcm for that year. It was also agreed that 

Ukraine would not be fined for buying less gas in 2009. Between January and October 2009, Ukraine is 

said to have imported just 18.85bcm compared with the contracted 31.7bcm, according to Gazprom. Over 

2009, Ukraine had agreed to buy a total of 42bcm. Furthermore, Russia had agreed to increase the transit 

fees it pays Ukraine by 60% in 2010. In 2009, transit fees stood at US$1.70 per mcm per 100km. 

While the actual gas prices have not been released, Tymoshenko said that the gas price Ukraine pays 'will 

be almost the same in 2010 as it [was] in 2009'. Further details on the gas price and the transit fees 

Ukraine and Russia will pay respectively in 2010 have not been released. In January 2009, Putin and 

Tymoshenko agreed that in 2009 Ukraine would receive a 20% discount on European market prices in 

return for maintaining transit fees at the same rate as in 2008, with Ukraine to start paying European-level 

prices and for transit fees also to reach market levels as of January 1 2010. It is unclear whether 

Tymoshenko’s comment means that the absolute price Ukraine will pay for gas imports in 2010 will 

remain more or less the same or whether the same 20%-discount principle will continue to apply. The 

price that Gazprom charged Ukraine in Q109 was US$360/mcm, almost exactly double the 

US$179.50/mcm Ukraine paid in 2008. 



In January 2009 Putin and Tymoshenko also agreed to eliminate RosUkrEnergo. This had been agreed 

before, in October 2008, so whether Naftogaz and Gazprom will from now on trade directly remains to be 

seen. RosUkrEnergo, which was created in 2004 to replace EuralTransGas as the intermediary to manage 

the gas trade between Turkmenistan and Ukraine, was established as a middleman between Gazprom and 

Naftogaz in January 2006 following the gas pricing dispute. A Swiss-registered monopoly JV, 

RosUkrEnergo, is 50% owned by Gazprom, with the remaining 50% owned by Raiffeisen Investment 

through its Swiss-registered Centragas Holding, acting on behalf of a consortium of Ukrainian 

businessmen. RosUkrEnergo has certainly profited from the Russia-Ukraine gas trade, and Naftogaz will 

be hoping that that company's elimination will help its own balance sheets. 

Turkmenistan 

Relations between Ashgabat and Moscow have soured following a disagreement in April 2009 over an 

explosion on the pipeline that transports gas from Turkmenistan's Dauletabad field to Russia via 

Uzbekistan. The Turkmen government blamed Russia for unilaterally cutting the volume of deliveries 

through the pipeline without giving Turkmenistan due warning to relieve the extra pressure on the route, 

thereby causing a rupture. Moscow pinned the blame on technical problems on the Turkmen side, but 

Turkmen President Kurbanguly Berdymukhamedov has demanded an international investigation and has 

said he will seek compensation from Gazprom. 

Gazprom clarified its stance on the incident in June 2009, stating that it reduced the pipeline’s throughput 

by 80% after notifying Ashgabat that it could no longer take the normal volumes owing to the economic 

slump. In response to Russia’s cut in gas purchases, Turkmenistan has boosted its efforts to diversify its 

customer base, announcing plans to raise exports to Iran, launch a new gas pipeline to China and supply 

gas for the EU-backed Nabucco pipeline. Gas exports finally resumed in January 2010, under the terms of 

a new agreement signed in late December 2009, which provides for 30bcm of Turkmen gas to be 

exported to Russia in 2010 and annually to 2028. Volumes have been cut drastically from the 70-80bcm 

of exports envisioned under the countries' previous gas supply agreement, which was signed in 2003, and 

from the 50bcm that Turkmenistan exported to Russia in 2008. 

Uzbekistan 

Gazprom signed a one-year supply contract with Uzbekistan in December 2009. Under the new contract 

Gazprom will purchase 15.50bcm from Uzbekistan in 2010, up from 11.25bcm contracted in 2009. The 

deal was signed between Gazprom and Uztransgaz, the transportation and export unit of state-run gas 

company Uzbekneftegaz. Although neither side has announced the price formula, Gazprom said that it 

will be in line with conditions in the European gas market. Following the deal, Gazprom's deputy 

chairman, Alexander Medvedev, said that the two sides had agreed to start preparation for a long-term 

contract. The current gas supply framework, signed in 2002, is due to expire in 2012. 

Poland 

Russian-Polish relations have often been fractious, although they have improved slightly since 2009 



under the more pragmatic new government of Donald Tusk. A new gas supply deal between Polskie 

Górnictwo Naftowe i Gazownictwo (PGNiG) and Gazprom was ratified by the Polish government on 

February 10. Under the agreement, Gazprom has agreed to increase gas supplies to 11bcm a year. The 

existing supply deal between the countries, known as the Yamal contract, has been extended from 2022 to 

2037 and the two sides also agreed to extend an earlier deal for gas transit via the Yamal-Europe pipeline, 

which runs to Germany, until 2045. 

The deal's slow progress towards approval reflects disagreements between Poland and Russia over transit 

fees payable to EuRoPolgaz, the operator of the Polish section of the Yamal pipeline. Between 2006 and 

2009 Gazprom unilaterally decided to pay lower transit fees than those set by the Polish energy market 

regulator URE. According to a report in Polish daily newspaper Rzeczpospolita, the two sides have come 

to an agreement under which PGNiG will receive a discount on the price paid for gas deliveries in return 

for dropping its claim against Gazprom. Putin claimed in September 2009 that under international 

agreements the company should be owned 50:50 by Gazprom and PiGNIG. He called for an investigation 

into the way that the Polish company Gas Trading had acquired a 4% stake in the project, with Gazprom 

and PGNiG holding 48% each. 

The Baltic Region 

Gazprom in September 2009 began transporting gas along the second branch of the Minsk-Vilnius- 

Kaunas-Kaliningrad pipeline, increasing its capacity from 1.4bcm to 2.5bcm. While the expansion of the 

pipeline is aimed at increasing gas supplies to the Russian enclave of Kaliningrad, Lithuania's gas 

company Lietuvos Dujos views it as essential for its security of supply. Gazprom also built an 

underground gas storage facility at Kaliningrad, which was completed in late-2009. Gazprom supplies 

Lithuania with gas under a long-term agreement effective through 2015. In 2008 Lithuania received 

3.1bcm of Russian gas in 2008. 

Tensions between Gazprom and Estonia and Lithuania have been rising since the two countries 

announced plans in mid-2010 to break up their Gazprom-controlled gas monopolies in an attempt to 

loosen Russia's grip on their energy markets and comply with the EU's energy competition directive. 

Prospects for an amicable solution have since been falling. On August 25 2010, the state-controlled 

Russian gas giant sent a letter to Lithuanian Prime Minister Andrius Kubillius, threatening international 

court action if his government splits up Lietuvos Dujos into trading and distribution arms. Gazprom 

argues the reform will wipe out its 34% stake in Dujos, adding that Lithuanian government acted 

unilaterally without consulting the firm's shareholders. Kubillius told local media that the letter amounted 

to 'big company pressuring a small country', setting the scene for a stand-off with Moscow. 

Lithuania is the largest gas consumer among the three Baltic states and like the rest of the region is 

wholly reliant on Gazprom for its gas supplies. Together with Estonia, Lithuania has long complained that 

it is forced to pay some of the highest gas prices in Europe. According to local media, Gazprom will 



charge Lithuania US$320/mcm over 2010. An average realised gas price paid by Gazprom's non-FSS 

European customers in H110 was just below US$300mcm, with most FSS states paying significantly less. 

Gazprom argues that owing to the small absolute volumes consumed by the Baltic states, it needs a price 

premium to make supplying the region worthwhile. 

Gazprom has managed to keep a presence in all the Baltic markets following the break-up of the Soviet 

Union and owns about a third of the national gas companies of Estonia (37%), Latvia (34%) and 

Lithuania (34%). The more Russia-friendly Latvia appears to be content with the status quo for the time 

being. Its two neighbours, however, have become decisively uncomfortable in Gazprom's grip. The Nord 

Stream subsea pipeline from Russia to Germany, bypassing the Baltics, has only raised Vilnius and 

Tallinn's energy security fears. 

As an alternative to Gazprom's supplies Lithuania is pushing the Amber pipeline project. In its revised 

form the 5bcm pipeline will link the country with Poland's planned LNG terminal. The Świnoujście 

terminal is due onstream in around 2015. For the foreseeable future, however, Lithuania's dependence on 

Russian gas looks solid. The same applies to even greater extent to Estonia. Until the two countries 

develop tangible supply alternatives, brinksmanship with Gazprom could lead to some long cold Baltic 

nights. 

Azerbaijan 

In March 2009 Gazprom and Azerbaijan's state-owned Socar signed an MoU for the delivery of a 

minimum of 500Mcm of Azeri gas to Russia a year starting in January 2010. A final binding agreement 

followed in October 2009. Socar's CEO Rovnag Abdullayev said following the deal that Azerbaijan 

would export 1bcm of gas to Russia from January 2010. The exported gas will be sourced from the first 

phase of Azerbaijan's Shah Deniz field. At a later stage, Russia may also import gas from Shah Deniz's 

second phase. Gas from this project has also been earmarked for the EU-backed Nabucco pipeline project, 

which is intended to supply Europe bypassing Russia. 

In January 2010 Gazprom announced plans to double gas imports from Azerbaijan to 2bcm from 2011. 

Gazprom added earlier in the month that it would be willing to buy 'all gas exported by Azerbaijan'. 

The Middle East 

There has been much talk of extending Russia’s Blue Stream pipeline to Turkey further south into the 

Middle East. In February 2006, Turkish energy ministry officials claimed that talks were under way 

between Gazprom and Turkish state-run gas distributor Botaş about extending the pipeline through 

Turkey to Syria, Lebanon, Israel and Cyprus in a project known as Blue Stream II. Speaking during an 

official visit to Turkey in June 2010 however, Prime Minister Putin said Israel is now likely to be 

excluded from the Blue Stream II project. Putin said that gas discoveries in recent years in Israel have 

reduced the country's future gas import projections, making an extension of the pipeline to Israel 

unnecessary. Putin stressed that the decision was not connected to an attack by the Israeli navy on a 



Oil Transit 

convoy heading towards Gaza, which drew international criticism. The attack does appear to have had an 

impact on Turkey's view of the project, however, with the country's Aksam newspaper citing unnamed 

energy ministry sources as saying that Turkey's international agreements with Israel, including Blue 

Stream II, would now be reviewed. 

The Baltic Region 

Russian Prime Minister Vladimir Putin signed an order on December 1 2008 for the construction of a 

second trunk line of the Baltic Pipeline System (BPS). The new line will boost Russia's oil export 

capacity from the Baltic Sea and will provide an alternative export route to the Druzhba North pipeline 

that runs from Russia through Belarus and Poland into Germany. Transneft proposed building the new 

BPS trunkline (BPS-2) in January 2007, and the government approved the project in May 2007. The 

existing BPS transports oil from European Russia to Primorsk on the Gulf of Finland. Construction was 

completed in 2001 and current capacity is 1.5mn b/d. BPS-2 will extend 1,300km from the Bryansk 

region to the port of Ust-Luga, near Primorsk, with a branch going to the Kirishi refinery. Oil should start 

flowing in Q312 at an initial rate of 600,000b/d, with capacity to be raised subsequently to 1mn b/d. The 

estimated cost is RUB120-130bn (US$4.3-4.7bn). Construction appears to have been delayed indefinitely 

from the June 2009 start-up date. 

Belarus 

Historically Russian companies were exempt from Russian export duties on oil exports to Belarus. This 

encouraged the companies to operate with so-called 'give-and-take' contracts, under which they would 

export duty-free crude oil to Belarus, where they would process it for a fee at the country's refineries 

before re-exporting it to Europe. In April 2007, however, as part of a general process of phasing out 

energy subsidies to former satellite states, Russia imposed a limited export duty on crude oil exports to 

Belarus and insisted that Belarus increase excise tax on oil products. This led to Russian companies 

ceasing the 'give-and-take' contracts and companies that had participated, such as Lukoil, began selling oil 

directly to the owner of the country's two refineries, Belneftekhim. 

Russia briefly stopped supplying Belarusian refineries in January 2010 after the existing supply deal 

expired without the two sides agreeing on a new framework. Under the expired agreement, Belarus had 

benefited from preferential oil trading terms with its eastern neighbour, with its refineries paying only 

around 36% of the standard Russian crude export tariff and then making a healthy profit exporting their 

refined products to European customers at market prices. During earlier negotiations over the new oil 

deal, Russia had said that it would provide tax-free oil to Belarus for domestic consumption, but that the 

country should pay export duties for oil exported to Europe. 

Belarus argued that this would go against an agreement on a customs union that the two countries signed 

late in 2009 and responded by demanding higher transit fees for oil crossing its territory. This divergence 



of positions was behind the two sides' failure to agree new terms. Oil flows resumed after a precarious 

temporary agreement was reached in late January 2010, which committed Belarus to paying full export 

duties on re-exported Russian oil. All duties, however, are due to disappear after the new customs union 

between the two counties comes into force in mid-2010. 

Turkey 

The governments of Turkey, Russia and Italy in October 2009 signed a preliminary agreement for the 

construction of the Samsun-Ceyhan oil pipeline, which would cross Turkey from the Black to the 

Mediterranean coast and thereby provide Russia with another export route for its Black Sea oil terminals. 

Russia agreed to supply the pipeline, also known as the Trans Anadolu Pipeline (TAP), earlier in 2009. 

The 550km oil pipeline will have an initial capacity of 1mn b/d, which will eventually rise to 1.5mn b/d. 

No start-up dates have been released. Transneft was offered a 50% stake in the pipeline in December 

2009, by Anadolu Pipeline Company (TAPCO), a 50:50 JV between Eni and local company Çalik 

Energy, which is developing the project. 

In an effort to fill the TAP pipeline, Transneft said in June 2010 that it could support proposals to impose 

quotas on shipments of oil through the Bosphorus. According to remarks made by Transneft's president, 

Nikolai Tokarev, at least two proposals are being considered to achieve this. Under one proposal, 

companies intending to export oil from the Black Sea would be given a quota restricting the volumes that 

can be transported through the Bosphorus. Volumes beyond the quota would have to be exported by 

pipeline. Under the other proposal, crude oil exports through the Bosphorus would be halted completely, 

forcing companies to transport all oil volumes by pipeline. Oil products and petrochemicals would be 

unaffected by both proposals and would still be transported through the Bosphorus. Tokarev did not 

specify how the quotas would be imposed. 

Table: Key Upstream Players 

Company 

Oil/liquids 

production 

(000b/d) Market share (%) 

Gas production 

(bcm) Market share (%) 

Lukoil 1,830 19.5 7.4 1.2 

Surgutneftegaz 1,197 12.1 14.1 2.3 

Gazprom Neft*** 957 9.4 na 0.3 

Tatneft 519 5.1 0.8 0.1 

Gazprom 335 3.3 462 78.3 

TNK-BP 1,680 14.7 12 1.9 

Rosneft 2,180 21.5 12.4* 2.1 

Russneft 254 2.3 na na 

Total 11 0.1 0.02 nm 



Table: Key Upstream Players 

Company 

Oil/liquids 

production 

(000b/d) Market share (%) 


(bcm) Market share (%) 

Imperial 13.5 0.1 na na 

Novatek 60 0.5 32 5.1 

Shell 106 1 2 1 

Alliance 42e 0.4 na na 

Includes JV entitlements, e = estimate, na = not available/applicable. Source: BMI, 2008 company data; , ***includes 

all Gazprom Group companies. 

Key Downstream Players 

Company 

Refining capacity 

(000b/d) Market share (%) Retail outlets Market share (%) 

Lukoil 894 16.3 2,170 19e 

Rosneft 1,130 20.5 1,695 15 

Surgutneftegaz 398 7 305 3 

Gazprom Neft 964 17.5 1,562 na 

Tatneft 80 1.5 484 5 

TNK-BP 560 10.1 1,400* na 

Bashneft affiliates 500e 9 317 na 

*Including Ukraine; e = estimate, na = not available/applicable. Source: BMI. Company data 2009 



Company Profiles 

Gazprom 

Company Analysis 

SWOT Analysis 

The threat of a break-up appears to have passed, with 

Russia keen to consolidate the gas major’s position, 

strengthen its grip on aspects of the energy market and 

liberalise domestic and CIS pricing. It also intends to 

increase its direct ownership. With higher domestic selling 

prices, earnings will benefit and more cash will be available 

for supply and export expansion. The addition of Sibneft 

has accelerated the growth of Gazprom and established it as 

the leading Russian generator of hydrocarbons volumes, 

revenues and earnings. 

Strengths: Dominant share of upstream gas supply 

Control of gas transportation system 

Rising export demand for gas 

Huge exploration upside potential 

Scope for domestic merger 

Weaknesses: Cost and efficiency disadvantages 

Rising investment requirement 

Artificially low domestic gas prices 

Financial Statistics 

Revenues 

• RUB3.0trn (2009) 

• RUB3.52trn (2008) 

• RUB2.42trn (2007) 

• RUB2.15trn (2006) 

• RUB1.38trn (2005) 

Net income 

• RUB793.8bn (2009) 

• RUB742.9bn (2008) 

• RUB658.0bn (2007) 

• RUB613.3bn (2006) 

• RUB311.1bn (2005) 

Operating Statistics (inc. 

Gazprom Neft) 

Gas production: 

• 462.0bcm (2009) 

• 550.0bcm (2008) 

• 548.6bcm (2007) 

Crude production: 

• 645,600b/d (2008) 

• 680,000b/d (2007) 

Condensate production: 

• 220,000b/d (2008) 

• 226,000b/d (2007) 

Opportunities: 

Threats: 

Growth in domestic/CEE/EU gas demand 

Large areas of unexplored territory 

Incorporation of Sibneft assets and management 

Efficiency gains/price liberalisation 

Russian corporate governance 

Changes in national energy policy 



Market Position 

Gazprom accounts for 80% of Russia’s gas production (2009) and holds at least two-thirds of the nation’s 

gas reserves (or 15% of world reserves). The company also has a virtual monopoly control over the 

domestic gas pipeline network, which supplies fuel to almost every Russian region, the CIS states and 

over 25 European nations. The firm remains heavily reliant on overseas gas sales, as it is forced to supply 

gas to the domestic market at subsidised rates. Domestic prices, however, are gradually being liberalised 

and are set to reach around US$70/mcm in 2010 and US$90/mcm in 2011, up from around US$20/mcm 

in early 2000s. Notable foreign assets include minority stakes in China’s West-East gas pipeline, and in 

phases 2 and 3 of Iran’s giant South Pars project. 

Strategy 

In 2009, Gazprom’s production fell to 460bcm, according to preliminary government figures. This was 

the worst performance in Gazprom's history, with the current low of 512bcm registered in 2001. In Q110, 

however, domestic demand began to recover, pushing up Gazprom's production figures. This led CEO 

Alexei Miller to announce a more ambitious target of 529bcm for 2010. In April 2010 he told Russian 

media that by 2013 the company expected to produce 565.5bcm, which would be a 13-year production 

high. Speaking at a news conference on June 9, however, Gazprom's gas and condensate departmental 

head, Vsevolod Cherepanov, said that from mid-May 2010 the company had begun to see a much sharper 

seasonal drop in demand than it had expected. Cherepanov said that the company has now revised its gas 

production forecasts. The company now expects to produce 519.3bcm in 2010, down roughly 10bcm on 

Miller's forecasts. He said that the company expects this to increase to 528.6bcm in 2011 and to 542.4bcm 

in 2012. 

By 2030, Gazprom wants to become a global energy player, reaching new markets with LNG and 

underwater pipelines. It wants to add 90mn tonnes of LNG capacity by 2030. At present Sakhalin-II is the 

only operational liquefaction terminal. With output at its mature Western Siberia fields in decline, 

Gazprom expects new generation projects in the Arctic (Yamal, Shtokman), East Siberia (Kovykta, 

Chayandinskoye) and the Far East (Sakhalin) to fuel future growth, accounting for half of its production 

by 2020. Gazprom also planned to supply about 25% of the world’s LNG needs by 2030, but that target 

was scrapped following the decline of the US import demand. By early 2010 Gazprom’s executives had 

acknowledged the need for a strategic overhaul owing to the negative impact of rising domestic US gas 

production. In December 2005, then deputy chairman Medvedev announced Gazprom's aim 'to gain more 

than 10% of the US market by 2010, increasing to 20% [at a later date]'. With US demand for gas imports 

on the wane, these targets are now looking decidedly unrealistic. 

Having scuppered Gazprom's North American ambitions, the spreading 'shale revolution', is beginning to 

pose a threat to its core business closer to home. The first negative consequences are already being felt by 

the company, as LNG cargoes head for European ports having been turned away from the US. There is, 



however, a more fundamental threat in the making to Gazprom's position in the European gas market. 

Bolstered by the successful application of technological advances in hydraulic fracturing (fraccing) in the 

US and Canada, the oil majors are now eyeing European shale plays, moving into such unlikely gas 

producing destinations as Poland and Sweden. Should the European shale basins prove to be commercial, 

the competitiveness of Russian gas imports in the region will be seriously, and perhaps terminally, 

undermined. 

The Yamal peninsula is believed to contain around 2.14bn bbl of oil plus 10.4tcm of gas. Although no 

firm project timetable has been set, Gazprom is aiming to start producing the first 15bcm of gas in Yamal 

by Q312 (a year later than originally expected) and then gradually boost volumes to 250bcm per year. 

The economic downturn, however, has forced the company to postpone investment in expensive new 

projects. In a setback for its resource nationalism agenda, Gazprom’s debt burden has led the company to 

express its readiness to reduce its stake in major projects, including Nord Stream and Shtokman, in return 

for increased funding from foreign partners. 

In February 2009, Russian business daily Kommersant reported that in an attempt to cut costs, Gazprom 

may invest exclusively in projects that would be profitable at a Brent price below US$25/bbl, with an 

exchange rate of US$1/RUB36. Kommersant reported that planned investments had previously been 

based on US$50/bbl. The plan was swiftly denied by the company, which stressed that no concrete 

strategic decisions have been made. Despite denying the report, Gazprom’s high debt levels, which stood 

at some RUB1.7trn (US$56bn) in mid-2009, must be a concern for the company. The Russia-Ukraine gas 

dispute is also likely to have hit its bottom line by around US$1-1.5bn, as well as damaging EU 

confidence in Russian gas supplies. 

The firm’s reported interest in UK gas supplier Centrica indicates a determination to gain greater control 

over its Western European customers, despite the assured political opposition to such a deal. Regardless 

of the rhetoric, Gazprom is committed to future European energy supplies through pre-existing contracts 

and infrastructure. In fact, most of Gazprom’s current export capability is geared towards Western 

Europe, and the cost of this network should ensure full usage through the long term. True, the Eurasian 

giant is busy courting the Asian market, but this relationship is in the very early stages. 

Gazprom is intensifying its relations with Western Europe. The company confirmed in November 2007 

that it is discussing long-term gas supply deals with several Italian utilities, including Enel and Edison. 

The news follows the 2006 agreement between Eni and Gazprom to extend supply contracts to 2035, 

which will allow the Russian company to sell gas directly to the Italian market. Gazprom has previously 

said that it plans to sell up to 3bcm of gas to Italy per annum from 2010. In March 2008, Gazprom 

announced that it may swap Russian upstream properties for some of Enel’s power assets. Meanwhile, 

January 2008 saw Gazprom announce plans to control 10% of the French gas market by 2012/13. In 2007 

the company directly supplied France with only 500Mcm. The bilateral ties are certainly getting closer, 



with major French utilities EDF and GDF Suez close to getting a minority stake in the South Stream and 

North Stream pipelines respectively. 

In November 2007, Gazprom announced plans to operate a natural gas entity in the US by 2014. While 

realising that the company will have to overcome regulatory barriers to enter the US market, it has said 

that it will use its economic strength to acquire assets. 

Latest Developments 

Corporate 

Gazprom has boosted its 2010 capex despite a downward revenue target revision. In September 2010, the 

company's board approved an amended version of the 2010 budget, raising planned investment by 13% to 

RUB905bn (US$29bn). To some extent the injection of an extra RUB103bn of investment in 2010 

reverses Gazprom's belt-tightening in 2009. In November 2009 Gazprom cut its 2009 capex by 

RUB216.5bn (US$x). Projects that were put on ice in the economic downturn are now gradually being 

defrosted. Extra investment in long-term projects such as South Stream and Algerian exploration also 

indicates Gazprom's broad strategic ambitions of defending its position in European gas markets. 

In 2010 Gazprom has been facing pressures to reduce its European prices. One of Gazprom's largest 

customers, E.ON Ruhrgas of Germany, has reportedly asked for a fresh price cut in August 2010, only 

six months after receiving its first discount. Should E.ON succeed in gaining a concession, other 

European utilities are set to follow suit. 

In February 2010 E.ON was among five major European utilities that obtained a price concession on a 

take-or-pay long-term supply contract with Gazprom. In E.ON's case, the German utility gained a right to 

buy 16% of its Russian gas imports through to 2012 at spot prices. In H110, Gazprom says it sold gas to 

Europe on long-term contracts for around US$300/mcm. Prices at UK's National Balancing Point (NBP), 

Europe's largest spot hub, averaged US$207/mcm in the same period, falling to as low as US$150/mcm in 

early 2010. 

Fresh demands for discounts are a highly unwelcome development for Gazprom, which has been hoping 

for a steady European economic recovery to revive its flagging fortunes in its main market. In Germany 

in particular, Gazprom has been losing market share to Norway, and to a lesser extent the Netherlands. 

Over 2009 European companies have been talking with Gazprom to reduce the volumes of gas that they 

are committed to buying under long-term 'take-or-pay' contracts. With imported gas volumes remaining 

below levels agreed with Russia, European buyers are seeking to avoid penalties set out in the contracts 

by agreeing a reduction in gas purchases, as has recently been arranged between Russia and Ukraine. 

Citing an unnamed Gazprom source, Russian daily Kommersant stated that the first company due to pay 

according to the 'take-or-pay' contracts is Eni on January 18 2010, followed by Turkey's state-owned 



Botaş and German company E.ON. According to Kommersant, other companies affected are Germany's 

BASF and RWE, and France's GDF Suez and Total. 

Gazprom announced the country's largest ever debt issuance on April 7 2010, in an attempt to raise 

US$10.2bn on Russia's bond market. The decision highlights Gazprom's attempts to take advantage of a 

highly active domestic bond market to restructure its long-term debt obligations. Gazprom instructed its 

banking arm, Gazprombank and Moscow-based Renaissance Bank to run the bond issue programme, 

which will comprise 13 issuances over a five-year period. 

By July 2009 Gazprom was set to acquire a controlling stake in Kyrgyzstan's national gas company 

Kyrgyzgaz, following Bishkek’s approval of an agreement allowing Gazprom to participate in the 

company’s privatisation. Gazprom has apparently proposed buying a 75% plus one share in Kyrgyzgaz. 

The negotiations, however, are still in progress for unspecified reasons. 

In November 2009, Gazprom sold to Germany’s E.ON Ruhrgas a 25% stake in Severneftegazprom, a 

Gazprom subsidiary and licence holder of the Yuzhno-Russkoye gas field in West Siberia. In return, 

Gazprom received from E.ON a 49% stake in Russia's Gerosgaz, which itself holds an almost 3% stake in 

Gazprom. Gazprom now owns 100% of Gerosgaz. E.ON’s direct 3.5% share in Gazprom has not been 

affected by the deal. 

In June 2009, Gazprom and Statoil signed a three-year MoU on E&P in northern Russia and Norway, 

replacing a 2005 cooperation agreement signed with Statoil and Norsk Hydro prior to their merger. 

According to a joint statement, the new MoU will not only see the two companies work together in E&P 

but also design and development of technologies for the harsh Arctic environment. In December 2009, the 

companies deepened ties by signing another MoU on joint gas trade in the US. 

Gazprom and Kogas signed a gas and chemical deal worth US$102bn in September 2008. As part of the 

agreement, Russia will supply South Korea with 10bcm of gas per year over a 30-year period from 2015. 

In April 2009 Gazprom exercised its right to purchase a 20% stake in oil producer Gazprom Neft from 

Eni. Under the deal Gazprom will pay US$4.2bn for the stake. SeverEnergia, (at the time of the deal 

60:40 owned by Eni and Enel) acquired equity in Gazprom Neft and a 100% stake in Western Siberiafocused 

gas companies ArcticGaz and Urengoil in April 2007 for RUB151.54bn (US$5.83bn) during a 

controversial liquidation auction of Yukos assets. As part of the deal, Gazprom secured an option to buy a 

majority stake in the gas assets and the shares in Gazprom Neft before April 9 2009 for around US$4bn. 

At the time, the deal seemed in Gazprom's favour as it was believed to undervalue Gazprom Neft. The 

agreed US$4.2bn purchasing price is equal to the price paid by Eni, plus interest, although it is 

significantly above 20% of Gazprom Neft’s valuation at the time that the deal went through (US$2.2bn). 

The economics of the deal are perplexing, highlighting the deal’s marked political undertones. 



Gazprom moved to finalise the acquisition of majority stakes in ArcticGaz and Urengoil in September 

2009. Gazprom farmed in a 51% into SeverEnergia for US$1.6bn, leaving Eni and Enel with 29.4% and 

19.6% respectively. Eni claims the consortium’s licences hold an estimated 5bn boe of reserves. It aims to 

launch the Samburskoye field by June 2011, with output expected to reach 150,000boe/d by 2013. 

Gazprom said in November 2008 that it was considering US majors Exxon and Conoco as potential 

partners in its Yamal LNG development. One option being looked at is a swap agreement, through which 

Conoco could be granted access to the Yuzhno-Tambeisky gas deposits in Yamal in return for Gazprom's 

joining projects in Alaska. Should a deal of this kind go ahead, it would mark a significant step forward in 

Gazprom's North American expansion plans. 

Projects 

Gazprom launched test production from Russia's first coal bed methane (CBM) project in February 2010. 

The CBM production facility at the Taldinskoye coal field in the Kuzbass region of south-western Siberia 

is expected to produce up to 5bcm of gas per annum once fully online in 2011-2012. The gas will supply 

the industrial belt of western Siberia, lowering the share of coal in the regional energy mix. 

Gazprom is re-evaluating its global expansion strategy in the light of falling US gas import demand. The 

unexpected growth of unconventional gas production in North America has torpedoed Gazprom's 

ambitious plans for exports to the world's largest gas consumer, raising questions over the future of the 

giant Shtokman development in northern European Russia. Following the announcement by Gazprom in 

February 2010 that first gas from the Shtokman project has been pushed back by three years to 2016, 

Russian news agency Prime-Tass has reported that the project’s consortium may be considering sending 

all of the field's gas by pipeline to European markets rather than exporting half as LNG, as previously 

envisioned. The news agency, citing documents from the consortium, reported that if the company fails to 

reach an investment decision on developing LNG at the project by the December 2011 deadline, gas 

would be transported via pipeline to Europe. The Shtokman Development Company (SDC) comprises 

Gazprom (51%), Statoil (24%) and Total (25%). An FID is due in March 2010. 

Gazprom in October 2009 announced plans to bring forward the start of production at the Kirinskiy field 

in the Sakhalin-III project, potentially to fill the Sakhalin-Vladivostok pipeline. The field, which was 

initially expected to come onstream in 2014, is now scheduled to start in late-2011 or early 2012. The 

Kirinskiy field, discovered in 1992, is estimated to hold 75.4bcm of gas and 64mn bbl of condensate. In 

June 2009, the field was awarded to Gazprom, and exploration drilling started in July. 

Gazprom petitioned the government in August 2009 to award it four new Yakutian permits – 

Srednetuginskoye, Tas-Uriahskoe, Coboloh-Nedzhelinskoe and Verhneviluchanskoe – because projected 

output at its Chayandinskoe Block alone would allegedly be insufficient to justify constructing a 

connector to the Sakhalin-Khabarovsk-Vladivostok pipeline, thereby connecting Yakutia to the expanding 

gas pipeline network on the Pacific coast. At the end of 2007, proven and probable reserves at the four 



new blocks stood at 462.6bcm of gas (based on Russia’s A, B and C1 classification). Although Gazprom 

did not disclose its output projections for Chayandinskoe, CEO Miller stated that the high helium content 

of the block's gas would require the construction of an expensive processing plant. Gazprom planned to 

bring the block onstream in 2016, the same year it plans to finish the construction of the Yakutia- 

Khabarovsk interconnector. The 6,000km pipeline has a design capacity of 32-35bcm per annum and 

aimed at eventually enabling exports of Yakutia’s gas from coastal LNG terminals. 

By mid-2009 Gazprom had already been awarded 14 blocks in eastern Russia without a competitive 

tender. According to Vedomosti, Gazprom paid around RUB11bn for the blocks, which have combined 

reserves of 6.29trn of gas and 8bn bbl of condensate. Apart from its petition for four new Yakutia blocks, 

Gazprom asked the government for tax holidays and/or export duty exemptions for its eastern projects. 

The newspaper’s government sources claim Putin overall supported Gazprom's suggestions. 

Whether Gazprom has the need or the capacity to develop the new Yakutia permits is in question. In 2004 

Gazprom estimated Chayandinskoe’s reserves at 1.24tcm, over half of Yakutia’s total, and more than 

sufficient for the planned pipeline to the Pacific. Moreover, the impact of the recession on Gazprom's 

finances has already forced the company to freeze several high-profile projects in the east and north of the 

country. In the current circumstances, Gazprom would find it difficult to fund the development of 

Chayandinskoe, let alone the four new Yakutia blocks it has asked for. The concessions are therefore 

likely to be idled for years to come. 

According to Vedomosti’s report in July 2009, wholly state-owned Rosneftegaz may replace Gazprom in 

the ownership talks for the giant Kovykta field in the eastern Irkutsk region. Nominally, the majority 

stakeholder in the project remains TNK-BP, but as a result of pressure from the energy ministry, for the 

past two years the Anglo-Russian company has been negotiating the sale of its stake to Gazprom. The 

MoU on TNK-BP’s sale of its interest in the Kovykta operating vehicle, Rusia Petroleum, to Gazprom 

was signed in June 2007. In pushing for the sale, the Kremlin focused on TNK-BP's failure to raise gas 

output at the project to the 9bcm required by the terms of the contract. This was based on the assumption 

that the Irkutsk authorities would comply with their part of the contract, building the required downstream 

infrastructure to channel Kovykta’s gas to local end-users. Irkutsk has failed to do this: the utilised gas 

output at the field is by early 2009 was an annualised 30Mcm. 

TNK-BP's inability to raise production led the Russian subsoil agency, using somewhat perverse logic, to 

threaten to withdraw the Kovykta licence. It was thought that once Gazprom took the reins, the company 

would be likely to alter contract terms to allow exports outside Irkutsk, with the eventual aim of 

constructing a gas pipeline to China. It now appears, however, that Kovykta has become the latest major 

gas development to be shelved by Gazprom as a result of the recession. Officials at the company told 

Kommersant that given the current demand conditions, Gazprom would prefer to concentrate on cheaper 

and lower-risk projects, adding that they were 'indifferent' towards Kovykta. 



Previously, Gazprom intended to begin large-scale development at Kovykta by 2017. The planned 

transfer of its interests to a holding company implies that even this date could be optimistic. Rosneftegaz, 

chaired by the Vice-Prime Minister Igor Sechin, has never participated in any active operations, 

suggesting the project will remain frozen for years to come. Although Gazprom confirmed talks with 

Rosneftegaz on the Kovykta transfer, Kommersant's sources stated that no final decision had been made. 

In BMI's view, even if Gazprom divests Kovykta at this stage, its monopoly on Russia's gas export means 

it will re-enter the project when the economics of the projects are deemed to be sufficiently favourable. 

Gazprom announced in June 2009 that it was indefinitely delaying the construction of a gas pipeline to 

China after the two countries failed to come to a gas price agreement. Russia and China have been in 

negotiations over gas exports since 2006, but their inability to resolve the differences resulted in the 

ambitious pipeline project, which was to transport some 30bcm of gas from 2011 and up to 85bcm at a 

later stage, being frozen. While Russia may previously have held the upper hand in negotiations, thanks to 

its vast gas reserves and China's rapidly rising demand, Beijing is now benefiting from major new gas 

import deals with Kazakhstan, Turkmenistan and Myanmar. 

In May 2009, Gazprom boosted the annual budget for the Sakhalin-Vladivostok pipeline to RUB50bn 

(US$1.6bn). The 1,830km pipeline is due onstream in Q311. Gazprom is also considering building an 

LNG export terminal and a petrochemical facility near Vladivostok. The pipeline will link two major 

projects offshore Sakhalin Island that are currently onstream, Sakhalin-I and -II, to the mainland. The 

section to Khabarovsk is already operational. Initially, Sakhalin-I's gas supplies will be used to feed local 

demand. In the same month Gazprom announced that it was set to buy 20% of gas produced from the 

Exxon-operated Sakhalin-I, according to media reports. Tensions between Exxon and the Kremlin have 

been high owing to a disagreement over marketing rights for gas from the project, with Exxon wanting to 

export the gas directly at (higher) international prices and the Kremlin wanting Gazprom to buy all of 

Sakhalin's I gas at (lower) domestic prices. 

Gazprom and its German partner Wintershall have brought onstream the Achimgaz project in July 2008. 

The US$1bn, 50:50 Achimgaz JV in Yamal is to produce nearly 1bcm of gas per annum and 6,000b/d of 

condensate. The project’s lifespan is 40 years. 

Gazprom announced in September 2008 plans to invest RUB23.5bn in constructing a new gas pipeline in 

the Far East. The pipeline will connect the Sobolevskoe deposit with the capital of the Kamchatka region, 

Petropavlovsk-Kamchatsky, and is due onstream in 2010. While it will be designed to supply the 

domestic market, in the longer term it may also be used to connect remote gas reserves to the country’s 

export infrastructure. 



Gazprom Neft (formerly Sibneft) 


SWOT Analysis 

Already the dominant force in the Russian energy sector, 

Gazprom’s attempts to become a major oil player paid off in 

2005 with the acquisition of Sibneft. Now re-christened 

Gazprom Neft, Sibneft was due to have merged with Yukos to 

form one of the world’s leading oil producers. The collapse of 

the deal during the Yukos crisis, however, made an eventual 

link with another player inevitable. Gazprom’s move denied 

Western companies the chance to acquire a well managed, 

profitable business – but has given the gas giant a major 

opportunity to develop oil expertise. 

Strengths: Significant role in Russian oil supply 

Cost-effective producing assets 

Substantial domestic refining business 


Revenues: 

• US$24.17bn (2009) 

• US$33.08bn (2008) 

• US$21.77bn (2007) 

• US$20.18bn (2006) 

Net income: 

• US$2.77bn (2009) 

• US$4.66bn (2008) 

• US$4.14bn (2007) 

• US$3.66bn (2006) 

Operating Statistics 

Net oil production (inc. equity 

entitlement) 

• 957,000b/d (2009) 

• 932,000b/d (2008) 

• 868,700b/d (2007) 

• 657,000b/d (2006) 

Refining throughput 

• 670,700b/d (2009) 

Strong retail portfolio 

State support 

Weaknesses: 

Lack of foreign partners 


Some cost and efficiency disadvantages 


International expansion 

Focus on under-explored Russian regions 

Cost cutting/asset upgrading potential 

Threats: 

Sustainability of Russian oil growth 

Oversupply in CEE refining capacity 

Competition with Rosneft 




Gazprom Neft was founded as Sibneft in 1995 and took on a broad portfolio of former state assets. 

Following two failed merger attempts with Yukos in September 2005, Gazprom acquired 72% in Sibneft, 

buying out businessman Roman Abramovich’s stake in a US$13bn deal, raising its stake to 95.7% after 

exercising its buy-out right in April 2009. The company was then renamed Gazprom Neft. It is now the 

fifth largest crude producer in Russia and has one of the best growth rates, owing to its strong position in 

high-potential regions. Gazprom Neft’s upstream assets are chiefly located in the Northwest and Western 

Siberia (Yamal-Nenets, Khanty-Mansiysk, Omsk, Tomsk, Tiumen), as well as Irkutsk and Chukotka 

further east. The main production arm is Noyabrskneftegaz, which operates about 30 fields in the 

Yamal-Nenets and Khanty-Mansiysk autonomous regions and holds around 60% of the company’s 

reserves. 

Other major producing assets include stakes in Slavneft and Tomskneft, jointly owned with TNK-BP and 

Rosneft respectively. As of Q309 Gazrpom Neft also has managerial control of Sibir Energy, which it 

won after significant effort. Sibir's upstream operations are focused on Khanty-Mansiysk where it holds 

the Salym fields, operated on a 50:50 basis with Shell, and the Yuzhnoe and Orekhovskoe fields, operated 

by subsidiary Magma Oil (95%). In 2009, Sibir’s net output averaged around 80,000b/d. 

Gazprom Neft’s refining and market assets include the 385,000b/d Omsk Refinery and a 60% vote in the 

240,000b/d Moscow Oil Refinery, as well as a growing network of service stations primarily located in 

Western Siberia, although Sibir’s acquisition has given it a strong position in Moscow. Through its 

wholly owned unit Moscow Oil and Gas Company (MOGC), Sibir owns 100% of 69 MKT-branded 

service stations, 51% of Mosnefteproduct's 64 stations and storage terminals and 25% of BP's Moscow 

retail network. 

Strategy 

The company is involved in the planned 1mn b/d Burgas-Alexandroupolis pipeline, which will transport 

Russian crude to Europe and is preliminarily scheduled for completion in 2010. Gazprom Neft also works 

on the Northern Zadegan project in Iran. 

Gazprom Neft plans to produce 1.8mn b/d by 2020 through developing Arctic fields and investing 

US$70bn. Gazprom Neft expects to receive the licence to develop the Arctic Prirazlomnoye deposit by 

2010 and plans to start work at the giant offshore field five years later. Downstream, the company plans 

to raise refining capacity until it accounts for two-thirds of crude production. It will achieve this goal by 

purchasing refineries at home and abroad, and is particularly interested in buying more European assets 

after in February 2009 acquiring 51% of Serbia’s Naftna Industrija Srbije (NIS). 




Gazprom Neft was awarded rights to develop the Novoportovskoye and Orenburgskoye East oil fields 

from parent Gazprom in December 2009. Novoportovskoye and Orenburgskoye East fields hold around 

1.7bn and 700mn bbl of oil reserves respectively. 

In December 2009, Gazprom Neft signed a deal to acquire Sweden-based Malka Oil’s subsidiary STS- 

Service for US$118mn. STS has three licences in the Tomsk region with combined oil and condensate 

reserves of 189mn bbl (C1+C2). The deal has yet to be approved by Malka’s shareholders. 

Gazprom Neft gained majority ownership of mid-sized domestic producer Sibir Energy in June 2009 after 

acquiring 50% of investment company Bennfield. Having bought the assets of Bennfield's joint owner 

Igor Kesaev, Gazprom Neft acquired indirect ownership of 23.35% of Sibir's shares, bringing its total 

stake in the AIM-listed firm to at least 54.7% (following a series of opaque deals with various previous 

shareholders, 2.3% of Sibir’s shares are unaccounted for). Gazprom Neft consolidated Sibir into its 

financial accounts and manages the company in partnership with the Moscow city council (19.3%). In late 

September 2009, Gazprom Neft petitioned the Russian competition authorities to acquire 100% of Sibir, 

adding that it expects an answer soon. Whether it was able to come to an agreement with the remaining 

shareholders, particularly the Moscow council, which in mid-2009 indicated its intention to raise its Sibir 

stake, remains unclear. 

Since having trumped a rival bid from TNK-BP in late April 2009, Gazprom Neft has bought out Sibir’s 

floating shares and some of its major investors, spending a combined US$1.67bn on the deals. The 

ownership of the other 50% of Bennfield (and therefore 23.3% of Sibir) remains disputed by its owners. 

The outstanding Bennfield shares are currently held as collateral by state-owned Sberbank, pending 

payment of its outstanding debts. 

Gazprom Neft’s deputy director, Boris Zilbermints, said in December 2008 that the company may be 

looking for foreign partners to develop the Prirazlomnoye oil field in the Barents Sea. Gazprom’s 

subsidiary Sevmorneftegaz previously reneged on its intentions to bring in foreign participants and stated 

plans to develop the field on its own. Gazprom is currently constructing an offshore production platform 

at Prirazlomnoye, which is expected to be completed by late-2010 or early-2011. Gazprom plans to hand 

over the field, along with a number of other licences, to Gazprom Neft in 2009/10. Prirazlomnoye, which 

holds estimated oil reserves of 600mn bbl, is expected to produce 120,500b/d. 

In December 2008, CEO Alexander Dyukov has also made an offer to Chevron to develop more fields in 

western Siberia. Gazprom Neft and Chevron formed a JV in 2007, Northern Taiga Neftegaz, to explore 

for and develop assets in the Yamal-Nenets region. 



Rosneft 


Rosneft’s Yukos acquisitions turned the company into Russia’s largest oil 

producer, surpassing private rival Lukoil, and extending state control to some 

40% of Russian production. In addition, the company has also become 

Russia’s largest refiner. Rosneft is largely state-owned, although a 2006 IPO 

has introduced an element of privatisation that the recession-hit Russian 

government in late-2009 pledged to deepen. Gazprom and Rosneft in 

November 2006 agreed a strategic cooperation deal that should see them 

share major development opportunities, rather than fighting over them. 

SWOT Analysis 

Strengths: Largest domestic oil producer 

Strong relationship with government 

Large fuels retail network 

Portfolio of CEE downstream interests 

Weaknesses: Complex corporate structure 

Inherited high cost base and inefficiency 

Opportunities: Growth in Russian oil production 

Rise in CEE regional oil consumption 


Revenues: 

• US$46.83 (2009) 

• US$68.99bn (2008) 

• US$49.22bn (2007) 

• US$33.1bn (2006) 

Net income: 

• US$6.51(2009) 

• US$11.1bn (2008) 

• US$6.5bn (2007) 

• US$3.5bn (2006) 


Oil production: 

• 2.18mn b/d (2009) 

• 2.13mn b/d (2008) 

• 2.0mn b/d (2007) 

• 1.5mn b/d (2006) 


• 12.7bcm (2009) 

• 12.4bcm (2008) 

• 15.7bcm (2007) 

• 13.6bcm (2006) 

Proven reserves (PRMS): 

• 22.9bn boe (2009) 

• 22.3bn boe (2008) 

• 21.7bn boe (2007) 

• 11.8bn boe (2006) 

Expansion into Chinese downstream market 

Long-term gas export opportunities 

Threats: 





Rosneft’s 19 E&P subsidies cover most of the Russian regions, but around 80% of its production comes 

from Western Siberia (Yuganskneftegaz and Purneftegaz) and the Volga region (Samaraneftegaz). 

Rosneft owns and operates seven major refineries in Russia: the Tuapse refinery on the Black Sea coast; 

the Komsomolsk refinery in the Russian Far; the Kuibyshev, Novokuibyshevsk, and Syzran refineries in 



the Volga-Urals region; and the Achinsk and Angarsk refineries in East Siberia. The company is also 

planning to construct a new 240,000b/d facility in Primorsk in Leningrad Region with Surgutneftegaz. 

Rosneft also runs export terminals in Arkhangelsk, Tuapse, Nakhodka and De-Kastri, and operates a retail 

network of around 600 service stations. 

Strategy 

Over the next two decades, Rosneft aims to become Russia’s leading energy company both in output and 

financial terms. To achieve this it is pursuing several policies. The company plans to increase crude 

production by exploiting existing oil reserves, with the goal of reaching 2.8mn b/d by 2015 and 3.4mn b/d 

by 2020. Rosneft also aims to exploit upside potential in gas. Rosneft believes itself to be capable of 

producing 40bcm by 2012, but the volumes will depend on gas sales and access to UGSS capacity, 

regarding which Rosneft is currently negotiating with Gazprom. The company is also developing value 

chains linking upstream assets directly to export markets and refining facilities. Ownership or a 

significant equity share in marketing subsidiaries will allow Rosneft to maximise netbacks. 

Under the 2010 business plan, Rosneft is planning capex of RUB217bn, equivalent to US$7.23bn using 

the RUB30/US$ exchange rate applied by Rosneft. The figure is the same as the investment originally 

envisioned for 2009. In February 2009, however, capex for that year was subsequently boosted to 

RUB227.85bn. Of the 2010 capex target, US$2bn will go on the refining segment, a 150% rise y-o-y. In 

June 2007, Rosneft then CEO Sergei Bogdanchikov announced plans to expand the company's refining 

capacity ninefold by 2015. Rosneft is planning to boost output in 2010 by 4.5% to 2.36mn b/d on the back 

of new start-ups in East Siberia. 

In June 2007, Bogdanchikov said the company plans to issue bonds to reduce debt and expand refining 

capacity ninefold. He further said that the company may build new oil refineries abroad, potentially in 

China and in other East Asian countries, to meet its refining capacity target by 2015. 


A company press statement on September 6 2010 said First Vice-President Khudainatov has been 

appointed President of Rosneft with immediate effect. Khudainatov's previous roles have included a spell 

at the Executive Office of the Russian president, as well as the position of general director of 

Severneftegaz. He replaced Bogdanchikov, who had been in charge since 1998. According to an FT 

report on September 4, Bogdanchikov is believed to have been at odds with company chairman and 

Deputy Prime Minister Igor Sechin. An unnamed FT source said that Khudainatov was less likely to 

adopt positions that conflicted with those of Sechin. Khudainatov's managerial background at 

Severneftegaz, a Gazprom subsidiary, has prompted speculation that Rosneft is looking to increase its 

exposure to Russia's gas industry. 



Rosneft has made a significant discovery in the Irkutsk region in Eastern Siberia, according to a statement 

by the Russian energy ministry in January 2009. The discovery holds 1.2bn bbl of oil (C1+C2). The 

discovery was made at the Sevastyanovo field in the Mogdynskiy Block, which Rosneft acquired in 2006 

for RUB1.32bn (US$44mn). No further details have been released, and Rosneft has not yet commented 

on the discovery. 

Sinopec and Rosneft are considering building a 400,000b/d refinery in the Far Eastern Primorsky Krai 

region, the Chinese company’s chairman, Su Shulin, said in October 2009. 

Rosneft plans to begin exploration offshore the disputed region of Abkhazia in 2010 after a five-year 

E&P deal with the regional authorities was signed in May 2009. Under the agreement, two companies 

will be set up, one to manage upstream offshore operations and another to focus on the downstream, 

where Rosneft plans to build service stations and to supply gasoline, diesel and lubricants. The latter 

company will be a JV with the Abkhazia state company Abkhaztop. 

In April 2009, the Moscow Arbitration Court ruled in favour of a claim lodged by Rosneft’s 

Samaraneftegaz subsidiary against independent rival Russneft over the latter's purchase of a former 

Yukos asset. Russneft was ordered to pay Rosneft RUB5bn (US$148mn) or cede its 50% stake in the 

Zapadno-Malobalykskoye (ZMB) production unit. According to the claimant, under the Yukos 

bankruptcy ruling, ZMB owed it RUB5bn in debt arrears. The court, however, stopped short of satisfying 

Samaraneftegaz’s petition in full and annulling Russneft’s ZMB purchase, thus transferring its stake to 

Rosneft. The fact that Samaraneftegaz initiated the legal proceedings nearly three years after Yukos's 

liquidation suggests that control over ZMB rather than the fine is the main motivation for the claim. 

Rosneft and its partner Korea National Oil Corporation (KNOC) signed a preliminary deal for 

Kamchatka exploration in December 2008. The two companies had been exploring the area until the 

federal sub-soil agency Rosnedra decided not to grant a new licence when the original licence expired in 

August 2008. While Rosnedra failed to give an official reason for not extending the licence, it is believed 

that the decision was based on delays in the exploration schedule. It remains unclear whether Rosnedra 

has decided to grant a new licence to the partners or whether Rosneft and KNOC have come to the 

agreement before applying for a new licence. Under the original contract, Rosneft held 60% in the West 

Kamchatka Holding, whose wholly owned subsidiary Kamchatneftegaz was the operator of the project. 

A South Korean consortium comprising KNOC, GS Caltex, SK Energy, Daewoo International, 

Kumho Petrochemical and Hyundai held the remaining 40%. 

When considering Kamchatka’s hydrocarbon reserves, Rosneft's and KNOC’s keenness to explore and 

develop the area is obvious. According to Rosneft's website, West Kamchatka contains 'prospective 

resources' of some 13.3bn bbl of oil and 2tcm of gas. This makes it comparable in scale with Sakhalin and 

highly attractive to Gazprom, which reportedly also applied for the Kamchatka licence in October 2008. 



A partial privatisation of Rosneft was completed in July 2006, with a US$10.6bn listing of the shares in 

London and Moscow. 



Lukoil 


SWOT Analysis 

Lukoil is the leading private Russian oil company and 

should remain so – particularly now that ConocoPhillips 

is on board as a strategic investor and upstream partner. 

Domestic volume growth is beginning to slow, but new 

projects, such as the Yuzhnoye Khylchuyu field in the 

Timan-Pechora region and fields in Uzbekistan and 

Iraq, provide growth potential. The downstream 

portfolio is also benefiting from international 

investment, putting Lukoil into a position of secure 

medium- and long-term revenue and earnings 

expansion. 

Strengths: Leading role in Russian oil supply 

Rising share of Caspian production 

Substantial domestic downstream business 

Strong portfolio of CEE downstream interests 

Conoco strategic partnership 

Weaknesses: Slower domestic growth than other producers 


Cost and efficiency disadvantages 

Opportunities: Growth in Russia/Caspian oil production 


Revenues 

• US$81.5bn (2009) 

• US$107.7bn (2008) 

• US$82.2bn (2007) 

• US$68.1bn (2006) 

• US$56.2nn (2005) 

Net income 

• US$7.0bn (2009) 

• US$9.1bn (2008) 

• US$9.5bn (2007) 

• US$7.5bn (2006) 

• US$6.4bn (2005) 


Net domestic oil production (inc. 

equity shares): 

• 1.84mn b/d (2009) 

• 1.93mn b/d (2008) 

• 1.95mn b/d (2007) 

Net domestic sale gas production: 

• 6.3bcm (2009) 

• 8.7bcm (2008) 

• 8.2bcm (2007) 

Refining throughput (group total): 

• 893,000,000b/d (2009) 

• 894,000b/d (2008) 

• 976,000b/d (2007) 

Proven oil and gas reserves: 

• 17.5boe (2009) 

• 19.3bn boe (2008) 



Massive Iraq development 

Threats: 







Russia’s largest private crude producer, Lukoil, had been in competition for the top spot with Yukos prior 

to the latter’s liquidation. Lukoil now accounts for 18% of Russian oil production and 18.3% of refining 

throughput, while boasting 1.3% of world oil reserves and 2.1% of global production. The bulk of the 

company’s E&P assets are located in West Siberia, with smaller reserves in European Russia, Nenets 

(Timan-Pechora) and the North Caspian regions. Lukoil holds stakes in E&P projects in Azerbaijan, 

Kazakhstan, Uzbekistan, Egypt, Saudi Arabia and Colombia as well a contract for the second phase of the 

giant West Qurna oil field in Iraq. 

ConocoPhillips bid for a minority Lukoil stake in 2004, subsequently raising its interest in the company 

to 20% at a combined cost of US$7.5bn. Lukoil and Conoco also created the 70:30 Naryanmarneftegaz 

JV to develop the Yuzhno-Khylchuyu field in the northern Nenets region. Production began in mid-2008, 

with output expected to peak at 150,000boe/d. Lukoil’s relationship with Conoco appeared to be 

weakening in March 2010 when the US company informed Lukoil of its plans to sell half its 20% stake in 

the Russian producer as part of a US$10bn divestment programme. 

Strategy 

Internationally, the company has refining assets in the Netherlands, Italy, Ukraine, Romania and Bulgaria, 

and retail networks in the US and most Eastern European and CIS states. International operations account 

for over 30% of Lukoil’s total refining capacity, 60% of its retail network and 4% of the resource base. 

Lukoil has curtailed its growth ambitions for the 2010s under its new 2010-2019 strategic development 

plan that was outlined in December 2009. The company will reduce annual capex to US$0.9bn from 

US$1.2bn envisioned under the previous 10-year plan (2007-2016), until it better understands the 

impending 'revolutionary changes' in the oil and gas industry, said Vice-President Leonid Fedun. 

The biggest change in the 2010-2019 plan is a major reduction in upstream spending and output targets. 

Capex on E&P will total US$60bn, 20% less than the target in the previous 10-year plan (2007-2016). 

Consequently, Lukoil now expects oil production to reach only 2.7mn b/d by the end of the coming 

decade, significantly below the 4mn b/d previously envisioned for end-2016. Furthermore, the company 

is increasingly pessimistic over output prospects from its maturing fields. The new plan raises the 

upstream capex earmarked for new generation projects from 39% to 57%, while investment in West 

Siberia and Volga/Urals will fall by 30% in comparison with the old scenario. 

The gas segment has also lost its shine for Lukoil. Fedun believes the impending 'acute glut' of global gas 

supply will exert strong downward pressure on prices and will hurt the profitability of its non-associated 

projects. Consequently, Lukoil will postpone gas developments in the Caspian and Yamal, previously 

seen as some of its main growth regions. The new plan sees the share of gas in total production rising 

from 10% in 2009 to 26% by 2019, against 33% previously envisioned for 2016. 



In the downstream segment, Lukoil has also significantly reduced its planned expansion. The company 

hopes to achieve 1.45mn b/d of refining throughput by 2019, much less than the 2mn b/d envisioned 

under the previous plan. Capex on refining, power generation and petrochemical divisions will amount to 

US$25bn, with 78% of that figure earmarked for domestic projects. The investment will be channelled 

into upgrades and efficiency measures rather than capacity expansion. 

The new plan suggests Lukoil may curb its foreign downstream asset buying spree, which saw the 

company acquire more than US$4bn of refining and fuel retailing assets in 2007-2009, culminating in the 

payment of US$725mn for a 45% stake in a Dutch refinery from Total in September 2009. Rumours have 

been circulating that Lukoil may be interested in more European refining assets that the French major is 

considering selling, but the new downstream budget certainly leaves little scope for large purchases. The 

company's growth strategy for retail networks in Turkey and Eastern Europe may also be affected. 

Having reduced its capex, Lukoil will use the freed-up funds to concentrate on improving profitability 

and cash flow and raising dividends. The new emphasis on caution and shareholder returns mirrors that of 

its partner Conoco and goes against the generally resurgent mood of the oil industry. 


US major Conoco decided to sell its entire 20% stake in Lukoil in mid-2010. The company sold to sell 

7.6% back to the company for US$3.4bn in Q310, and the remaining 60% will be sold on the open market 

by end-2011. 

Lukoil reported revenues of US$23.9bn and net income of US$2.05bn in Q110. Revenues increased from 

US$14.75bn in Q109, while profits were up 126.9% on the previous year. 

In April 2010 Lukoil brought the first oil field in the Russian sector of the Caspian Sea onstream with the 

launch of production from the Yuriy Korchagin deposit. Korchagin is one of Lukoil's six large discoveries 

in the Caspian, touted as one of Russia's new oil and gas frontiers. 

In December 2009, Lukoil gained full control of the LukArco vehicle after buying out its partner BP for 

US$1.6bn. The deal gives Lukoil a 12.5% stake in the Caspian Pipeline Consortium (CPC), a trunkline 

running from western Kazakhstan to Russian ports, and a 5% stake in the giant Tengiz field in 

Kazakhstan. 

Lukoil was planning to launch the Yuri Korchagin field in Russia’s sector of the Caspian Sea in early 

2010. The field holds 570mn boe of possible (P3) reserves and is expected to produce 50,000b/d of oil 

and 1bcm of gas at its peak. Yuri Korchagin is one of the six large fields discovered by Lukoil in the 

Russian sector of the Caspian Sea since entering the area in 1995. To date, Lukoil boasts 100% 

exploratory drilling success in the Caspian, making it one of the high-growth potential regions for the 

company. In September 2009 Lukoil provided an update for its North Caspian project, announcing plans 

to produce 200,000b/d of oil and 6bcm of gas per annum by 2016. This is significantly below Lukoil’s 



previous announcement made in April 2009, which put the North Caspian target at 260,000b/d and 14bcm 

by 2016. The April 2009 announcement called for RUB390bn (US$16.6bn) of Caspian investment. 

After Korchagin, the second field, the larger Filanov (Filanovskoe), is due onstream in 2014. Gas output 

from Korchagin and Filanov will be pumped to the Russian region of Kalmykiya and then onwards to 

Gazprom’s trunklines. Development of the mostly gas-bearing Khvalynskoe deposit on the Kazakh 

maritime border is carried out under a PSA held by the Caspian Oil and Gas Company consortium 

comprising Lukoil (50%), state-run KazMunaiGaz (KMG, 25%), and French companies Total (17%) 

and GDF Suez (8%). Khvalynskoe is expected to peak at 8bcm and is preliminarily due onstream in 2016. 

The North Caspian fields are located relatively close to Lukoil’s refineries including plants at Odessa 

(Ukraine), Bourgas (Bulgaria) and Ploieşti (Romania). 

In June 2009, a state-run Russian financial institution acquired a stake in Lukoil. The companies did not 

comment on the size of the stake and the terms of the deal, but unnamed sources have told Reuters that 

the stake is less than 5%. 

Lukoil and Transneft have allegedly approached Polish refiner PKN Orlen over buying a stake in 

Lithuania's Mažeikių refinery, Polish media reported in April 2009. PKN’s trumping of Russian bids for a 

controlling stake in Mažeikių in 2006 coincided with Transneft’s decision to shut down the refinery's 

feedstock pipeline owing to apparent technical problems. 

One of the company's most high-profile foreign deals, the purchase of a 10% stake in Spanish-Argentine 

company Repsol YPF, fell through in late 2008 after the Spanish government appeared to implicitly 

blocked the deal as a result of popular opposition. 



TNK-BP 


SWOT Analysis 

Following an acrimonious battle for control over TNK- 

BP during H108, BP and its Russian partners in 

September 2008 restructured the board and top 

management, signalling a new chapter in the company’s 

history. TNK-BP has the potential to challenge Russian 

oil industry leaders over the medium term. While it will 

take years to become a leading Russian oil company, it 

should rapidly become the most profitable given BP’s 

commitment. Long-term gas interests capable of 

supplying the Asian markets provide another dimension. 

All of these opportunities depend, however, on the 

company staying in the Kremlin’s good books. 

Strengths: Major oil producer 

Significant share of refining capacity 

Large fuels retail network 

Portfolio of CEE downstream interests 

Benefits of BP management/technology 

Weaknesses: Complex corporate structure 

Inherited high cost base and inefficiencies 


Revenues: 

• US$34.75bn (2009) 

• US$51.9nn (2008) 

• US$38.6bn (2007) 

• US$35.5bn (2006) 

• US$30.0bn (2005) 

Net income: 

• US$4.97bn (2009) 

• US$5.3bn (2008) 

• US$5.3bn (2007) 

• US$6.6bn (2006) 

• US$4.7bn (2005) 


Oil production (inc. JVs): 

• 1.68mn b/d (2009) 

• 1.45mn b/d (2008) 

• 1.42mn b/d (2007) 


• 12bcm (2009) 

• 11.6bcm (2008) 

• 9.4bcm (2007) 

Refining throughput (Russia): 

• 574,000b/d (2009) 

• 675,000b/d (2008) 

• 778,000b/d (2007) 

Proven oil and gas reserves (PRMS) 

• 11.67bn boe (2009) 

• 8.1bn boe (2008) 

• 8.3bn boe (2007) 


Growth in Russian oil production 



Long-term gas export opportunities 

Threats: 







In February 2003, UK-based oil major BP and Russian financial companies Alfa Group and Access- 

Renova (AAR), the owners of TNK, agreed to a US$6.35bn merger of their Russian businesses. At the 

time the deal represented the single largest Western investment in post-Soviet Russia. BP later agreed to 

pay a further US$1.4bn to include AAR’s 50% interest in Slavneft in the new JV. TNK-BP is governed 

by a 10-member board, with representatives nominated equally by BP and AAR and decisions taken 

unanimously. AAR nominates the chairman and BP the CEO. 

TNK-BP’s upstream assets are chiefly located in the West Siberia and Volga-Urals. Its downstream assets 

include interests in five refineries, with an installed capacity of 50mn tpa and a retail network of 1,600 

sites in Russia and Ukraine. The main gas producer is the Rospan wholly owned subsidiary, which 

produced 6.5bcm in the Nizhnevartovsk region in 2008. 

TNK-BP has four refineries in Russia and one in Ukraine, with a total nameplate capacity of 560,000b/d. 

Of these, the Lisichansk plant in Ukraine can produce Euro-4 level diesel and the Saratov refinery in 

southern Russia can produce Euro-3 and Euro-4 gasoline, while the Ryazan refinery, in Central Russia, 

has had the technology to produce Euro-5 diesel since 2008. The two smaller refineries are the 

Krasnoleninsk and Nizhnevartovsk plants in West Siberia. 

In September 2008, BP and AAR signed an MoU setting out a resolution to their six-month dispute over 

control of TNK-BP, signalling a breakthrough in a complex and acrimonious power struggle. 

Nonetheless, many thorny issues remain, and we expect further ructions, albeit of a less dramatic nature, 

ahead. The agreement has three main components. First, it provides for a restructuring of the company’s 

board, including the introduction of three new directors unconnected to either side. The second proviso 

was the replacement of CEO Robert Dudley with an ‘independent’ candidate Maxim Barsky, who was 

approved by the board. Third, it allows the sale of up to 20% of a subsidiary of TNK-BP through an IPO 

on the international markets. 

Strategy 

Following Dudley’s resignation in December 2008, BP and AAR reportedly pitted their respective 

nominees, Pavel Skitovich and Barsky, in a head-to-head competition for the post. In November 2009, 

Barsky, who previously led independent West Siberian Resources, was named the winner. Alfa director 

Mikhail Fridman, however, will be an interim CEO until 2011, while Barsky is being trained. 

TNK-BP approved a US$1.8bn investment plan for 2010-2012 in February 2010. The planned upstream 

spending is in line with TNK-BP's strategy of aggressively replacing its reserves each year. Of the total, 

around US$1.7bn (96%) is to be spent on the two upstream projects. The first involves the full field 

development and the establishment of regional infrastructure at the eastern part of the Uvat group of oil 



fields, while the second project is the further development of the Verkhnechonskoe oil field in East 

Siberia. 

TNK-BP will be hoping that the investment in its upstream Siberian assets will help contribute towards its 

goal of replacing 100% of its production with new reserves each year. The company aims to spend around 

80% of its total budget each year on upstream projects, with the focus on its core East Siberian and West 

Siberian regions. US$137mn has been earmarked to upgrade a diesel hydrotreater unit at the company's 

130,000b/d Saratov refinery, as part of a US$1.3bn package outlined in October 2009 to enhance fuel 

quality from the company's refineries. 

The announcement of the new spending follows a statement by TNK-BP in October 2009 that it was 

planning to invest US$400mn in its fields in the Yamal Peninsula. Of this amount, US$180mn was 

allocated for developing its heavy oil Russkoe field in 2010/2011 and the remaining US$220mn was put 

towards its Suzun and Tagul oil fields. 

In February 2008, TNK-BP announced plans to increase production by 18% to 1.9.mn b/d by 2012, using 

US$15bn of projects to deliver a recovery in volume expansion. In March 2009, TNK-BP said it would 

invest US$1bn by 2012 into development of the Samotlor field for maintaining oil production in it at a 

level of 30mn tpa (600,000b/d). 

TNK-BP’s growing gas output is obliging the group to negotiate with pipeline monopoly Gazprom over 

the offtake of the extra volumes. TNK-BP has started signing long-term (three-year) contracts for the 

supply of gas to customers, according to the company in November 2007. The conclusion of long-term 

contracts with customers of TNK-BP requires guarantees of gas transportation by Gazprom. There have 

also been talks with Gazprom over the joint construction of a now-scrapped LNG project near St. 

Petersburg. 


TNK-BP in July 2010 was in talks with unnamed banks over taking a US$700mn unsecured three-year 

loan, according to Reuters. 

On June 3 2010, TNK-BP announced that it had begun voluntary bankruptcy proceedings for its 

subsidiary Rusia Petroleum, the operator of the Kovykta field. TNK-BP initiated bankruptcy 

proceedings against Rusia after recalling its loans to the subsidiary in mid-May 2010. By end-Q110, 

Rusia's total debt stood at RUB11.4bn (US$367mn), according to company's financial report. Although 

the company did not state the preferred buyer for Russia’s assets, it is most likely that the Kovykta licence 

will find its way to government-connected firms. 

In May 2010 the company said that it is planning to expand its premium-class bitumen production by 

60% y-o-y. The move is in response to Russian legislation increasing the minimum lifespan of roads, 



which will boost demand for longer-life bitumen products. To contribute to the 60% growth target, TNK- 

BP aims for a 50% increase in production of its polymer-modified TNK Alfabit brand of premium 

bitumen from 24,000 tonnes in 2009 to 36,000 tonnes in 2010. TNK-BP claimed that using TNK Alfabit, 

which will be produced at its pilot plant in Ryazan, 250km south-east of Moscow, could extend the life of 

a road to seven-10 years from the current two to three years. 

The Russkoye field, located in Russia's Yamal-Nenets region, holds an estimated 2.25bn bbl of oil 

reserves (international P3 classification). Discovered in 1968, the field remained undeveloped owing to 

the challenging climate and the lack of heavy oil processing technology. TNK-BP estimates the total cost 

of developing the field at US$4.5bn. Peak production is expected to be between 200,000b/d and 

400,000b/d, depending on whether TNK-BP constructs facilities for blending the oil to allow it to be 

transported by pipeline. 

TNK-BP is ramping up volumes at the Uvat project in the Tyumen region of West Siberia. In early 

February 2009, its subsidiaries Tyumenneftegaz and TNK-Uvat brought onstream the Ust-Tegusskoe 

and Urnenskoe fields. According to TNK-BP's figures cited by Oil & Capital, output from the two new 

fields was expected to average 60,000b/d in 2009 and above 100,000b/d in 2010. The company expects to 

reach peak output of approximately 220,000b/d in 2015/16. The Ust-Tegusskoe and Urnenskoe fields will 

account for half of that figure, while the other half will come from smaller satellite fields that are yet to be 

developed. By end-2009, total investment in Uvat was set to reach RUB13bn. 

TNK-BP entered the Uvat district in the early 1990s and has since discovered an estimated 1.47-1.61mn 

bbl of recoverable reserves (C1+C2) in its 13 licences in the area. There are currently 21 known fields in 

the Uvat project, the first of which, Kalchinsoe, entered production in 1993. Discoveries in 2007/08 

included the Kosukhinskoe, Protozanovskoe, Secero-Kachkarskoe, Nemchinovskoe, Sredne-Keumskoe, 

A.Malyk, Yuzhno-Venikhyartskoe and Zapadno-Epasskoe fields. Uvat is set to become a cornerstone of 

TNK-BP's Western Siberian strategy, with the company planning to incorporate its assets in the 

neighbouring Omsk and Khanty-Mansiysk regions into the project. 

Russia's environmental watchdog Rosprirodnadzor has advised Rosnedra, Russia's subsoil agency, to 

withdraw the licence for the Kovykta gas condensate field from TNK-BP. A dispute over the field's 

development has been ongoing for years, with TNK-BP being pressured to sell its 62.8% stake to a stateowned 

company. In June 2007, an MoU was signed under which TNK-BP agreed to sell its interest in 

Rusia, the operator of Kovykta, to Gazprom. Talks over the sale broke down, however, and since July 

2009 Gazprom seems to have put its interest in the field on the backburner as a result of the recession. 

In the past Rosnedra has argued for the removal of the licence from TNK-BP thanks to the company's 

inability to raise production to 9bcm as required under the terms of the licence. However, this output 

target was based on the assumption that the Irkutsk authorities would comply with their part of the 

contract through building the required downstream infrastructure to channel Kovykta's gas to end-users. 



With Irkutsk having failed to fulfil its side of the contract, TNK-BP has not been unable to meet the 

contracted output targets. 

Currently, TNK-BP holds 62.8% in Kovykta through its stake in Rusia Petroleum, whose other 

shareholders are Interros Resources (26%) and the Irkutsk government (11%). Kovykta's reserves are 

estimated at 2tcm (C1+C2). Viktor Vekselberg, one of the company’s Russian co-owners, announced in 

June 2009 that the sale of Kovykta could be imminent and the government was close to including 

Kovykta in Gazprom’s investment programme. 

TNK-BP in August 2009 announced plans to construct a new 450Mcm gas processing plant at the 

Pokrovskoe oil field in the Orenburg region by 2012. Pokrovskoe is operated by TNK-BP’s subsidiary 

Orenburgneft. Capturing 95% of associated gas production is nominally a legal requirement in Russia. 

By end-2008, TNK-BP had already invested over US$600mn in gas utilisation projects and the company 

plans to invest a further US$700mn in such projects by 2012 with the view of raising the utilisation from 

the current rate of roughly 80% to 95%. Although cost estimates for the Pokrovskoe facility have not 

been announced, Kommersant’s industry sources put the price tag at US$150-400mn. TNK-BP already 

reached a deal with Gazprom to link the plant to its pipeline system. It is estimated that around 80% of 

TNK-BP’s gas production in 2009 will be a by-product of oil production. 

In June 2009, TNK-BP announced the start of new phase of production at the Kamennoye oil field in 

West Siberia, boosting its output to 36,000b/d. In 2004-2008, TNP-BP invested over US$600mn in 

Kamennoye and hopes to boost its output to 80,000b/d by 2015. 

In mid-October 2008, VerkhnechonskNefteGas, a JV between TNK-BP (68%) and Rosneft (32%), 

began commercial oil production at the Verkhnechonsk field in East Siberia, which is expected to average 

26,100b/d over 2009. TNK-BP believes Verkhnechonsk to hold recoverable reserves of over 1bn bbl of 

oil and sees peak production at 140,600-200,900b/d. Crude is exported to Asia via the ESPO pipeline. 

TNK-BP said it had invested around US$1bn in the field to date and is likely to spend another US$4bn 

over the course of its producing life, with capex of US$500mn planned for 2009. 

Russian police raided TNK-BP headquarters on March 2008 as part of a long-running criminal 

investigation against Sidanko Oil (one of the companies merged to form TNK-BP in 2003). 

TNK and Sibneft jointly acquired Slavneft in 2004’s privatisation auction, with the company producing 

over 360,000b/d of crude from fields in Western Siberia. 



Tatneft 


SWOT Analysis 

Tatneft is struggling to deliver upstream volumes, and 

has a small and inefficient downstream operation. 

Attempts to diversify internationally have met with 

mixed success, with modest exposure in Ukraine and a 

stalled deal in Turkey. State priorities do not necessarily 

coincide with those of the company, and Tatneft looks 

unlikely to be able to compete effectively with its larger 

Russian peers. Investment is required at high levels in 

order to maintain output, expand petrochemicals 

capacity and enlarge/improve its downstream arm. 


Revenues: 

• RUB220bn (2009) 

• RUB444.3bn (2008) 

• RUB356.3bn (2007) 

• RUB318.3bn (2006) 

Net income/(loss): 

• (RUB100bn) (2009, prelim.) 

• RUB8.41bn (2008) 

• RUB43.3bn (2007) 

• RUB29.8bn (2006) 


Crude production: 

• 519,100b/d (2009) 

• 501,500b/d (2008) 

• 517,000b/d (2007) 

Strengths: 

Weaknesses: 


Threats: 

Dominant oil producer in Tatarstan 

Growing CEE portfolio 

Domestic refining and marketing interests 

Involvement in petrochemicals supply 


Modest refining/retail capacity 

Limited upside potential in oil supply 

Growth in local oil/regional demand 

Expansion of petrochemicals segment 

Downstream oil upgrading/expansion 

Sustainability of upstream oil volumes 




• 756Mcm (2009) 

• 760Mcm (2008) 

Proven oil reserves: 

• 6.311 bbl (2009) 

• 6.25bn bbl (2008) 

• 5.91bn bbl (2007) 

Proven gas reserves 

• 36.8bcm (2007) 




Strategy 

Tatneft is the main oil company active in the Volga region of Tatarstan and the country’s sixth largest oil 

producer. The group’s key shareholders are the regional government of Tatarstan (with 31%), the TAIF 

group of companies (6%) and employees (8%). Downstream assets include two Tatarstan refineries, the 

20,000b/d Kichuyi plant (100%) and the Nizhnekamsk plant (63%), and a network of over 600 service 

stations in Russia and Ukraine. Tatneft holds an 8.6% stake in Ukraine’s largest refinery, the 370,000b/d 

UkrTatNaft. The company also has exploration acreage in Libya and Syria. 

Tatneft said in January 2004 that planned expansion projects through to 2010 would cost over US$2.7bn. 

This will include a US$1.3bn processing complex at the Nizhnekamsk refinery, incorporating a 

polypropylene and polyethylene production plant. Tatneft will also expand its service station network and 

the capacity of the Nizhnekamsk synthetic motor oil plant. The company’s crude output is expected to 

remain flat over the next five years, as it is already investing billions to maintain production levels at its 

ageing fields. 


In November 2009, Tatneft increased its syndicated loan to US$1.5bn from US$900mn. The three-year 

loan, which is secured on oil exports, was oversubscribed. The loan will be used for general corporate 

purposes particularly for Tatneft's refinery and petrochemical complex, which is currently being built at 

Nizhnekamsk in Tatarstan. 

In May 2009, Kalmneftegaz, in which Tatneft holds a 50% stake, has booked 35bcm of gas reserves from 

a discovery in northern Kalmykia. 



Total 


SWOT Analysis 

The French major’s focus in Russia is the European Arctic. 

Total’s most significant upstream asset is its 40% stake in the 

Kharyaga field. The company has also been named partner of 

the Shtokman development field, but it may not gain ownership 

of Shtokman’s reserves or production. In the downstream 

segment, Total has some petrol outlets across the country. The 

French company is keen, as are most IOCs, to increase its stake 

in Russia’s upstream despite the challenging business 

environment. 

Strengths: Offshore and deepwater expertise 

Good relationship with Gazprom 

Weaknesses: Rising investment requirement 

Unpopularity of PSAs 

Opportunities: Rise in CEE regional oil and gas consumption 

Financial Statistics (Group) 

Total revenue: 

• EUR131.3bn (2009) 

• EUR180.0bn (2008) 

• EUR158.7mn (2007) 

• EUR132.7bn (2006) 

• EUR117.1bn (2005) 

Net income: 

• EUR8.6bn (2009) 

• EUR13.9bn (2008) 

• EUR12.2bn (2007) 

• EUR11.4bn (2006) 

• EUR11.6bn (2005) 


Net oil production: 

• 11,000b/d (2009) 

• 8,000b/d (2008) 

• 7,000b/d (2007) 

• 7,000b/d (2006) 

Net gas production: 

• 204Mcm (2009) 

Potential for award of further Russian acreage 

Threats: 



Uncertainties over financing and future operations of 

Shtokman 


Total’s interest in Russia is concentrated in the Arctic region of Yamal-Nenets. The company has a 50% 

interest in the Kharyaga oil field, which holds estimated reserves of 1.2bn bbl of oil. The 29-year PSA 

was signed in 1995 and came into operation in 1999. Current output is around 20,000b/d, but following 

the development of Phase 3, production at Kharyaga is expected to rise to around 60,000b/d by 2013. The 

combined investment in the project is put at US$900mn. The other partners in the project are Statoil 

(30%), Zarubezhneft (20%) and the Nenets Oil Company (10%), which is controlled by the regional 

government. Downstream, Total operates petrol stations across the country’s main cities. 



In July 2007, the company gained a 25% stake in the Shtokman field in the Barents Sea, which holds gas 

reserves of around 3.2tcm. According to Total’s CEO, Christophe de Margerie, the company will invest 

US$4-5bn in the project over the next five years. The company has relevant expertise in deepwater and 

long-distance gas production, as well as in LNG transportation. The operating consortium will take on all 

the risks and will own the infrastructure for 25 years once production has started. The licence for the 

field, however, will be held by Gazprom’s 100%-owned Sevmorneftegaz unit, with Gazprom retaining all 

output marketing rights. There has been some confusion over whether Total will be allowed to book a 

25% share of the field’s reserves, with the company’s CEO claiming that it will do so, while Gazprom’s 

statement suggests that this is not the case. 

Strategy 

The French company has been one of the few foreign majors to maintain investment in the country, in 

spite of the new paradigm for foreign investment in the country, which provides for state control over 

resources and production with minority stakes for foreign partners. The company seems to be benefiting 

from France’s admission of Gazprom into the national downstream market. It is speculated that in return 

for greater access to the French market, Total was given Shtokman stake. Putin's good relations with de 

Margerie are likely to give Total the reassurance it needs to increase investment in Russia. In June 2009, 

Les Echos newspaper cited Total’s head of E&P, Yves-Louis Darricarrere, as saying that Total and 

Gazprom are looking at more joint projects in Russia. 


In June 2009 Putin approved a JV between Total and independent gas producer Novatek. Putin’s blessing 

followed Total’s sale of its stake in its Dutch refinery to Lukoil. Following a meeting with Total's CEO, 

Putin approved Novatek and Total's US$900mn plan to develop the 47.3bcm Termokarstovoye field in 

Yamal-Nenets, and even intimated that the French group could be chosen for the second phase of the 

Shtokman field project. Under the deal, Total will take a 49% stake in Terneftegaz, a Novatek 

subsidiary, which holds the Termokarstovoye licence. The partners will carry out further appraisal and 

development studies with the aim of launching the project in 2011. 

The Russian government in April 2009 approved Total’s plans to invest US$403.7mn in development of 

the Kharyaga field during 2009, ending previous disputes over the project’s spending. In March 2007, the 

energy ministry accused Total of failing to comply with the terms of Kharyaga’s licensing agreement. 

This has prompted concern that Total’s share in the field could go the way of Shell’s Sakhalin-II stake 

and TNK-BP’s interest in Kovykta, and be sold to Gazprom. However, in July 2007, Russian authorities 

approved an increase in the 2007 cost estimate for Kharyaga oil field. Cost overruns on PSAs have been a 

major sticking point between IOCs and Russian regulators, as PSAs only oblige operators to share their 

profits with the state once their expenses are recouped. 



In July 2007, following months of indecision by Gazprom, Total was chosen as a partner in Shtokman. 

Originally, Gazprom had pre-selected IOCs to act as minority equity partners in the field’s development, 

and shortlisted Total, along with Norway’s Statoil and Norsk Hydro, and US majors Chevron and 

ConocoPhillips. In October 2006, however, Gazprom performed a sudden volte-face and declared that it 

would develop the field on its own. This move raised doubts among analysts as to whether the company 

had the financial resources and technical ability for such a challenging project, especially considering its 

lack of LNG experience at the time. Since then, Gazprom has gradually softened its approach, first stating 

that it would allow IOCs in contractors, and then giving Total a major role in the field’s development. 

In 2006, Rosneft cancelled a deal with Total to develop the Vankor oil field, and the French major lost its 

appeal against the decision. 



Novatek 


SWOT Analysis 

Russia’s largest private gas producer is going from strength to 

strength. On the back of good Kremlin connections and solid 

management, production and reserves continue to rise steadily 

and profitability remained strong even in the 2008-2009 

downturn. The big test for the company’s ambitions, however, 

will come once its Arctic LNG projects get under way, as the 

company will be challenging Gazprom’s export monopoly. 

Strengths: Large untapped Arctic gas field 

Good reserve base 

Good Kremlin connections 

Condensate cash flow 


Sales 

• RUB52.3bn (H110) 

• RUB86.9bn (2009) 

• RUB76.1bn (2008) 

Net income/(loss) 

• RUB18.1bn (H110) 

• RUB25.7bn (2009) 

• RUB22.9bn (2008) 


Net Condensate Production 

• 60,000b/d (2009) 

Net Gas Production 

• 32bcm (2009) 

Proven Hydrocarbon Reserves 

• 8.85bn boe (end-2009) 

Weaknesses: 

Remote deposits 

High costs of LNG projects 

Kremlin’s anxiety over foreign partners in the Arctic 


Northeastern Passage 

Exports to Asia 

Threats: 

Lack of export markets 

Resurgence of Gazprom’s monopolistic instincts 

Cost inflation in the Arctic 


Novatek was founded in 2004 and is Russia’s largest private gas-focused player, focusing its activities on 

Yamal-Nenets. Its proven reserves were 8.85bn boe by the end of 2009. The strong reserve growth was 

attributed to new wells at the Yurkharovskoe and Sterkhovoye fields, and the discovery of new deposits 

in the Khancheyskoe field. The company is majority-owned by its management, although Gazprom has a 

19% interest. While still a minnow in comparison with the state gas giant, Novatek has been growing 

steadily, reaching 32bcm of output in 2009, plus 60,000b/d of oil and condensate. 



As the company aims to expand its share of the domestic gas market, it is beginning to clash with 

Gazprom, which is keen to protect its quasi-monopoly on distribution. Novatek, however, is a formidable 

competitor, boasting the support of Genadiy Timchenko, a former secret service official with close 

connections to Vladimir Putin. In June 2009 Timchenko raised his direct stake in the company to 20.8%. 

Novatek scored a major victory in November 2009, when Gazprom conceded the independent a right of 

access to the national pipeline, in return for an 18% net-back transit fee. This enabled Novatek to continue 

with the deal to supply subsidiaries of Russia’s largest power provider, Inter RAO UES, with 65bcm 

from 2010 to 2015 at a cost of about RUB177.3bn (US$6bn). Although Inter RAO is already contracted 

to buy that gas from Gazprom, Novatek was able to woo the utility with lower prices, to the ire of the 

state gas giant. 

Through its controlling stake in the Yamal LNG operating vehicle, Novatek is the operator of the South 

(Yuzhno)-Tambeyskoe gas field onshore the Yamal-Nenets region, which is expected to begin exporting 

gas by about 2018. The project is known as Yamal LNG. Although no firm project timetable has been set, 

Gazprom previously said it aims to start producing the first 15bcm of gas in Yamal by 2011 and then to 

gradually boost volumes to an ambitious 250bcm per year. 

Strategy 

The company is pursuing a two-pronged strategy – boosting supplies to the domestic market while 

developing LNG export projects in Yamal. To advance Yamal LNG, Novatek will need a well-heeled 

foreign partner but the company has given conflicting indications about when this will happen and who 

will be joining it. A number of IOCs, as well as Qatar government, have made overtures to Novatek about 

joining the Yamal LNG scheme. 


In May 2009, Novatek paid US$650mn in cash to acquire a 51% stake in Yamal LNG, denying rumours 

of a planned share offer. Gazprom holds another 25.1% in Yamal LNG through a subsidiary as well as 

directly controlling a 19% stake in Novatek. Gazprom previously announced its intention to begin 

feasibility studies on an LNG plant on the peninsula in early 2010, although the financial crisis is likely to 

delay this. The chief executive officers of the two companies agreed to begin third-party negotiations on 

the project following a meeting in August 2009. Yamal LNG is the operator of the South-Tambeyskoe 

gas field in the Yamal-Nenets region. In June 2009, Gazprom shortlisted Total and Shell for participation 

in Yamal LNG, adding that Mitsui and Mitsubishi were also expected to obtain minority rights in the 

project. Conoco has also previously expressed interest. 

Amid much fanfare, in August 2010 Novatek shipped its first cargo of condensate using the Northern Sea 

Route (known as the Northeast Passage) to demonstrate the feasibility of selling its resources in the 



Barents Sea region directly to Asia. A cargo of condensate was dispatched to China in Sovcomflot's hightonnage 

tanker Baltica with support from a nuclear icebreaker. 

By using the Northeast Passage, Novatek can reduce its normal journey to China and Japan of about 

20,400km around the Suez Canal to about 12,500km, which would significantly reduce transit time, fuel 

costs and the risk of pirate attacks. 



Russneft 


SWOT Analysis 

Although a relatively small producer by Russian 

standards, Russneft is well integrated with upstream oil 

assets, two refineries, service stations, and a fuels 

terminal. While this means the company is relatively safe 

from crude oil price fluctuations, the company’s main 

challenge during the late 2000s has been dealing with state 

influence and legal disputes. Following its acquisition by 

Sistema in 2010, these problems now appear to be over for 

Russneft, giving it the chance to stabilise its declining 

crude production. With the threat of a merger with 

Bashneft in the future, the company’s independent 

existence seems to be at risk. 

Strengths: Integrated upstream and downstream 

Diverse upstream oil portfolio 


Revenue: 

• RUB116.14bn (2009) 

• RUB137.10bn (2008) 

• RUB113.70bn (2007) 

• RUB102.45bn (2006) 

Net Profit : 

• RUB15.57bn (2009) 

• RUB10.58bn (2008) 

• RUB12.25bn (2007) 

• RUB9.94bn (2006) 


Refining Capacity: 

• 132,594b/d (2009) 

Oil Production: 

• 254,942b/d (2009) 

• 286,082b/d (2008) 

• 281,260b/d (2007) 

• 296,328b/d (2006) 

Weaknesses: 

Declining oil production 



Growth in Russian oil production 


Threats: 

Vulnerable to state influence 

Large state-run competitors 


Russneft, one of Russia’s largest privately owned energy companies, was formed in 2003 when its owner 

Mikhail Gutseriyev left Slavneft and purchased some of its assets. Russneft produced 255,000b/d in 2009. 

It has 30 separate upstream operations split into four groups – West Siberia, Ural, Povolzhsk and central 

Siberia – and has recoverable reserves of 4.6bn bbl. 

In the downstream, Russneft also owns two refineries: the 132,594b/d Orsknefteorgsintez plant in Orsk 

(Orenburg) which produces fuels and the Neftemaslozavod plant which it acquired from TNK-BP in 2005 

and is dedicated to producing lubricants and protective rustproof compounds. In 2009 the Orsk refinery 



processed about 105,000b/d, giving it a utilisation rate of less than 80%. The company also owns a 

network of 96 petrol stations (end-2009) and a crude oil terminal producing 140,000-b/d in the Bryansk 

region. 

Russneft was breaking the mould of an increasingly state-dominated industry, until its shares were frozen 

by a district court in August 2007, after owner Gutseriyev was charged with tax evasion. Gutseriyev then 

sold the company to a Basic Element (Basel) investment vehicle controlled by Oleg Deripaska, a major 

businessman generally seen as a Kremlin ally. The Kremlin's removal of an international search warrant 

for Gutseriyev in November 2009 enabled Russneft’s founder to resume ownership of the company. In 

January 2010 Gutseriyev agreed to take over Russneft from Deripaska, in return for assuming the 

company's US$6bn worth of debts and US$600mn in cash. 

Strategy 

Now that Gutseriyev's relations with the government have apparently been mended at present, we expect 

the businessman's extensive experience in the oil sector to spur Russneft's development in the next few 

years. Following his return, Gutseriyev agreed to farm out 49% of Russneft to conglomerate Sistema for 

an undisclosed amount. The Russneft stake will allow Sistema to balance out its downstream-heavy 

portfolio, helping it fill its refineries. 

In May 2010 Gutseriyev said Russneft was considering merging with Sistema subsidiary Bashneft in two 

to three years. According to Gutseriyev, the merged company would then conduct an IPO. He added that 

Russneft intends to increase its annual oil production to 400,000b/d of oil in the next few years and to 

make an annual profit of US$1.5bn (RUB45.9bn). 

Recent Developments 

In September 2010 Sistema announced the process of restructuring Russneft’s debt was nearly complete. 

The announcement followed remarks by Sistema President, Leonid Melamed, in May 2010 that once 

Bashneft covers debts of US$7bn, Sistema would allow the two companies to merge. 

In August 2009 Russneft and its partner MOL settled an internal dispute over the jointly operated 

Zapadno-Malobalykskoye (ZMB) field in West Siberia. According to the Interfax news agency, Russneft 

agreed to pay RUB6.3bn (US$201mn) debt for the oil it bought from ZMB. Although the settlement has 

diffused internal tensions, Russneft's stake in the project remains threatened by a competing ownership 

claim from Rosneft. 

Gazprom Neft suspended talks over the purchase of Russneft in April 2009. Gazprom Neft appears to 

have baulked at Deripaska's reported valuation of the company, according to Vedomosti’s sources. 

Gazprom Neft wanted to buy Russneft by assuming its debt, which is estimated at US$5.6bn, while 

Deripaska valued the company at US$7.5-8bn, excluding debt. The negotiations broke down after the 



indebted Deripaska was thrown a lifeline by state-owned Sberbank, which agreed to restructure one of 

Russneft’s loans. 



Surgutneftegaz – Summary 

Surgutneftegaz is the fourth largest crude producer in Russia. Its traditional base is southern West Siberia 

but it has been expanding into Timan-Pechora and Khanty-Mansyisk in the north and views Eastern 

Siberia as another growth region. Crude production averaged 1.2mn b/d in 2009; gas output totalled 

around 14.1bcm. The company’s downstream assets include the 398,000b/d Kirishi Oil Refinery 

(KINEF) in the Leningrad region. Retail assets include a network of around 300 service stations in 

Northwestern Russia. Sales in 2008 amounted to RUB547bn. Its reporting of profits, however, is 

somewhat erratic, as it does not follow international accounting standards. In March 2009, Surgutneftegaz 

made its first foray into international markets, paying US$1.4bn for a 21.2% stake in Hungarian oil and 

gas company MOL, to the chagrin of the Hungarian government. 

Surgutneftegaz is an opaque company. It moved 42% of its shares to a separate company in 2003 and 

since then has not revealed the ownership of that stake, instead classing the stock as treasury shares. 

According to a statement by Russian strategist Stanislav Belkovsky to German newspaper Die Welt in 

2007, Prime Minister Vladimir Putin himself owns 37% of Surgutneftegaz. 

Sistema – Summary 

Telecom-focused Russian conglomerate Sistema made a big entrance into the oil industry in April 2009, 

acquiring six major upstream and downstream businesses in the Republic of Bashkortostan (Bashkiria) in 

the Urals region. The deal gave Sistema a 76.5% stake in Bashneft, the regional quasi-monopoly, plus 

five affiliated refining and marketing concerns. 

In early-2010, Sistema reached a preliminary agreement to acquire 49 % of Russneft. The Russneft stake 

will allow Sistema to balance out its downstream-heavy portfolio, helping it to fill its refineries. Further 

upstream growth is expected to come from the once-sleepy Bashneft, with Sistema targeting 7.8% crude 

output growth in Bashkiria in 2010. Given Sistema's growth ambitions, further acquisition of oil assets in 

Russia and the former Soviet Union is to be expected in the near future. 

Bashenft holds 2.2bn of proven reserves and is the second largest producer in the Volga-Urals region after 

Tatneft. The company produced around 234,000b/d from around 140 fields in Bashkiria and neighbouring 

Tatarstan and Udmurtia in 2008. The company’s biggest revenue earner, however, is its large affiliated 

refining business, which comprises the Ufaneftechim, Novoil, Ufaorgsintez and Ufimskiy plants, and 

accounts for around 10% of Russia’s refining capacity. Production of refined products in 2008 stood at 

420,000b/d. Marketing arm Bashkirnefteproduct has around 317 service stations in the region. Sistema is 

now pushing to acquire full ownership of the Bashir assets. 

Sistema will reportedly invest RUB100bn (US$3.24bn) in upgrading its Bashkir refineries in 2011-2014. 

The announcement was made by Rustem Khamitov, the governor of Bashkiria, in September 2010. The 



move will help it remain competitive in the fuels export market as local rivals such as TNK-BP invest 

heavily in their own plants. 

In December 2009 Sistema signed a strategic cooperation agreement with India’s ONGC for joint energy 

projects in the FSU. 

Itera – Summary 

Itera is another significant domestic Russian gas player. An opaque company, it has traditionally been a 

gas trader but in the 2000s got involved in production. Itera works close with Gazprom and has access to 

its pipeline system. While Itera is keen to establish itself as a leading ‘independent’ Russian gas producer, 

it has backed a continuation of Gazprom’s near-monopoly. 

Royal Dutch Shell – Summary 

Anglo-Dutch Shell is no longer the leading member of the US$10bn Sakhalin-II integrated project in the 

Far East, having relinquished control to Gazprom in December 2006 after a drawn-out battle. Previously, 

Shell held a 55% stake but now retains 27.5% minus one share. Shell is also involved in the Salym group 

of oil fields in Western Siberia through a 50:50 Salym Petroleum JV with Sibir Energy, a Gazprom Neft 

subsidiary. The partners are developing the West Salym, Upper Salym and Vadelyp fields, which hold an 

estimated 600mn bbl of crude reserves. The Salym fields started commercial production in December 

2005, peaking at around 160,000b/d in 2009, mostly from West Salym. 

In spite of the chequered history of its Russian operations, Shell has proposed developing Yamal reserves 

with Gazprom. In February 2009, Shell’s former CEO Jeroen van der Veer also said the company was 

looking to discuss joint projects with Gazprom in the Far East. This was followed in June 2009 by Putin’s 

informal invitation to Shell to join the Rosneft/Gazprom-led Sakhalin-III and -IV project, which were 

abandoned by BP. 

In March 2009 Salym Petroleum extended a drilling contract with US-based oil field services company 

Halliburton in a deal worth US$100mn. Halliburton has been working at Salym since 2005 and will now 

remain there until at least 2013. 

ExxonMobil – Summary 

US major's subsidiary Exxon Neftegas (ENL) operates the US$12bn Sakhalin-I project with a 30% stake, 

working alongside two units of Rosneft (20%), India's OVL (20%) and a consortium of Japanese 

companies JNOC, Japex, Itochu and Marubeni (30%). The partners are developing the Chayvo, Odoptu 

and Arkutun-Dagi offshore fields, which are estimated to contain up to 2.3bn bbl of crude and 485bcm of 

potential recoverable gas resources. Oil production from Chayvo, the only producing field so far, began in 

2006. Production peaked the very next year at around 225,000b/d (somewhat below initial expectations) 

and has been declining since, averaging 193,000b/d in 2008 and 165,000b/d in 2009. Chayvo also 



produces gas, with output expect to eventually reach 10bcm per year. Currently, consumption of 

Sakhalin-I's gas remains confined to the Khabarovsk region. Rising output volumes, however, present 

significant export potential. 

Progress at Sakhalin has been slower than expected owing to disagreements between Gazprom and Exxon 

over gas marketing rights. Exxon supports the construction of a pipeline to China, an option it has under 

the project's PSA. Gazprom, on the other hand, has previously favoured shipping the gas as LNG from the 

Sakhalin-II export terminal, although more recently it has insisted the gas is needed to supply the 

domestic market to support industrial expansion in eastern Russia. 

In late-April 2009, Exxon resumed work at Sakhalin-I after the energy ministry finally approved its 

US$2bn cost plan for that year. Delay in the budget approval forced Exxon to briefly halted work on the 

project in February 2009. 

The Odoptu field is due onstream in H210, Exxon announced in January 2010. Oil production from 

Odoptu will offset declining output from Chayvo. The Odoptu Phase 1 development will utilise the 

existing midstream infrastructure connected to the Chayvo field. Crude from Odoptu will be sent by 

pipeline to the Russian mainland for export via the De-Kastri terminal in the Khabarovsk region. No 

production estimates for the Odoptu fields have been released. In May 2010 Exxon said that the Odoptu 

field will increase output at Sakhalin-I by 30,000b/d when it comes onstream in H210. 

Transneft – Summary 

State-owned Transneft is Russia’s oil pipeline monopoly. It transports about 93% of Russia’s oil 

production, operating some 50,000km of long-distance pipelines, including the Druzhba (Friendship) line, 

which runs from Russia through Belarus and Poland into Germany. Transneft is also the largest 

shareholder (31%) in the 750,000b/d CPC system, which stretches 1,505km from Tengiz in Kazakhstan to 

the Russian Black Sea port of Novorossiysk. 

In December 2008, the government approved Transneft’s request to increase oil transportation tariffs by 

15.7% from 2009. While this increase is lower than the 21% rise requested by Transneft, the news will 

present another blow to Russian oil producers that are already exporting crude at a loss after paying 

export duties, transportation tariffs and taxes amid subdued oil prices. In 2008, Transneft raised its oil 

shipping fees in January and August by 19.4% and 10.7% respectively. The company has argued the 

increases are necessary to maintain its infrastructure and finance new projects, particularly the ESPO. 

Sakhalin Energy – Summary 

Sakhalin Energy operates the Sakhalin-II project, which formally began operations on February 18 2009 

and which incorporates an oil field with associated gas, a natural gas field with associated condensate, a 

pipeline, and an LNG processing plant and export terminal. Once fully onstream, the project will produce 



9.6mn tpa of LNG and around 900,000b/d of crude oil. As of December 2006 Sakhalin Energy is majority 

owned by Gazprom (50% plus one share) alongside former majority owner Shell (27.5% minus one 

share), Mitsubishi (12.5%) and Mitsui (10%). Gazprom paid US$7.45bn for its majority stake. Roughly 

two-thirds of Sakhalin-II’s LNG exports will be exported to nine utilities in Japan, while the remaining 

third goes to South Korea and North America. 

In March 2009, Osaka Gas signed an SPA to buy 200,000tpa of LNG from Sakhalin-II from 2011 

without disclosing the financial terms. 

Wintershall – Summary 

BP – Summary 

Wintershall is an upstream subsidiary of German chemical group BASF. The company has two major 

projects in Russia. The first, the US$3bn Yuzhno (South) Russkoe gas project, holds recoverable natural 

gas reserves of more than 600bcm, and reach plateau production rate of 25bcm per annum in mid-2009. 

The companies have a preliminary agreement in place to supply over 800bcm of gas to Europe to 2043 

through BASF’s distribution arm Wingas. The second project is the US$1bn Achimgaz JV in the Yamal- 

Nenets region, in which Gazprom and Wintershall are equal partners. It came onstream in July 2008 and 

produced around 1bcm and 6,000b/d of condensate in 2009 and is expected to peak at 7.5bcm and 

55,000b/d of condensate. The project’s lifespan is put at over 40 years. 

BP's presence in Russia is now concentrated on the TNK-BP JV, with the British major pulling out of the 

CPC pipeline consortium and significantly reducing its Sakhalin exposure. BP has been active in Sakhalin 

since 2006, when it launched a 49:51 JV with Rosneft to develop Sakhalin-IV and -V areas in the Sea of 

Okhotsk. The most promising acreage in Sakhalin-IV was thought to be the West Schmidt Block, with 

reserves estimated at up to 3bn bbl of oil and 255bcm of gas. Two exploration wells were drilled at the 

Medved and Toiskaya structures in 2007 but both disappointed. Following extensive interpretation of 

seismic data, BP appears to have decided that the block holds little commercial prospects and in March 

2009 abandoned the Sakhalin-IV project. 

In February 2010, BP and Rosneft also relinquished the East Schmidt Block at Sakhalin-V. BP and 

Rosneft said that after evaluating extensive seismic data they decided not to proceed to the drilling phase, 

again owing to poor commerciality. The JV, however, has chosen to keep the other permit in the 

Sakhalin-V project, the Kaigansky-Vasuykanskiy (KG) Block. The partners drilled two deepwater wells 

at KG in 2006 and have been sufficiently encouraged by the results to shoot more seismic data in 2010 in 

preparation for further drilling. Estimated reserves at the only certified discovery at the block, dubbed the 

Kaigansko-Vasyukanskoye Sea field, are put at 118mn bbl of oil and condensate (ABC1). 

With all synergy between Sakhalin-IV and Sakhalin-V now lost, any commercial discoveries at the KG 

block are most likely to be developed in conjunction with the Sakhalin-III project further south. 



Lundin Petroleum – Summary 

Swedish independent Lundin Petroleum has interests in four production licences and one exploration 

licence in Russia. Its most prospective asset is the Laganskiy (Lagansky) Block in the Northern Caspian, 

where the October 2008 Morskaya discovery is estimated to hold 230mn boe of recoverable reserves. 

Although Lundin currently holds a 70% interest in Laganskiy, Gazprom has a call option to acquire a 

50% plus one share stake. Lundin has also agreed a call option to acquire an additional 30% stake from 

remaining shareholder Gunvor, an oil trader. Should both options be exercised, Lundin would retain 50% 

minus one share in the block, leaving Gazprom 50% plus one share. 

In February 2009, Rosnedra extended Lundin’s exploration permit for the Laganskiy Block until August 

2014. The contract extension will allow Lundin to delay the drilling of the Morskaya-2 appraisal well 

until 2010, which will test the western section of the discovery. The Petrovskaya structure, which was 

estimated to hold reserves of up to 300mn bbl, however, has disappointed after the Petrovskaya-1 

exploration well came up dry in November 2009. 

OMV – Summary 

Austria's OMV is looking to divest its Russian exploration assets and is talking to potential buyers, CEO 

Wolfgang Ruttenstorfer said on May 20 2010. Its Russian assets, through subsidiary Petrom's majorityowned 

Ring Oil Holding and Trading, are eight exploration blocks in the region of Saratov and two 

blocks in the region of Komi. 

In August 2009, Petrom reported its first Russian exploration success at the Lugovaya-1 well, located in 

Saratov's Kamenskiy licence. Well tests showed a flow rate of more than 2,500b/d of light sweet oil in 

one zone, while two gas-bearing formations produced a combined 4,000boe/d of sweet gas and 

condensate. Russia's natural resources ministry said in October 2009 that reserves at the block could be as 

much as 80mn tonnes, or 586mn bbl, although it did not specify the level of certainty attached to this 

estimate. 

Ironically, this exploration success may be the reason for OMV's decision to exit Russia. According to 

Russian's law on strategic deposits, passed in May 2008, the state is empowered to take over oil 

exploration licences where recoverable reserves exceed 70mn tonnes (513mn bbl). Should the natural 

resources ministry's reserves estimate be accurate, the Kamenskiy licence would be subject to this law. 

Although the law provides for compensation of costs plus a 30%-50% 'premium,' the fact that licences are 

subject to state appropriation is a major risk and has contributed to negative investor perception of Russia. 

Irkutsk Oil Company – Summary 

Irkutsk Oil Company, known by its Russian acronym INK, was established in November 2000 by 

bringing together several small oil and gas producers in the Irkutsk region of East Siberia. It was the first 



to bring onstream oil production in Irkutsk and remains the largest producer in the region. The company 

currently holds 11 oil and gas fields, all operated by separate subsidiaries. The company appears to be 

owned by its management, with 8.1% held by the European Bank for Reconstruction and 

Development (EBRD). INK has a strong focus on gas capture and is pursuing various policies to 

eliminate flaring at its fields. Production in 2008 stood at 6,000boe/d. There are several developments in 

the pipeline, which should benefit from connection to the ESPO export pipeline. 

In November 2009, state-run Japan Oil, Gas and Metals National Corporation (JOGMEC) signed an 

agreement with INK to study the potential application of gas-to-liquids (GTL) technology at their joint 

projects. The agreement formalises GTL plans announced by the INK chairman in September 2009. The 

technology would be applied at the Mogdinskiy Severniy, Bolshetirskiy and Yaraktinskiy Zapadnyy 

blocks, which are being developed by INK-Sever, a 51:49 JV between INK and JOGMEC. 

Aladdin Oil & Gas – Summary 

Oslo-listed Aladdin Oil & Gas was founded in 2006 and is solely focused on Russian exploration and 

production. It holds four licences through its 100%-owned Geotechnologia subsidiary: Middle 

Sediolskoye, West Uthinskoye and two licences in the Timan-Pechora Basin, all in north-western Russia. 

In addition, the company's 100%-owned Orneftegaz and Veselovskoe subsidiaries are exploring in the 

south of the country: at Bogdanovskoe in the pre-Caspian depression and in the Volga-Ural Basin, giving 

Aladdin a total of eight Russian licences. According to Nedrelid, Aladdin has invested a total of 

NOK375mn (US$66.9mn) in Russia since 2006. 

In October 2009 Aladdin signed an agreement with Gazprom’s subsidiary KomiRegionGaz to sell 

46Mcm per annum for five years from its Middle Sediolskoe field in the Komi Republic. Trial production 

started in March 2010. The gas price for deliveries will be adjustable, with the price for Q409 set at 

RUB1,770/mcm (US$60/mcm). On October 14, the company announced that it was increasing its P2 

reserve estimates for the Middle Sediolskoe field to 383Mcm. Aladdin is hoping to produce 2,650boe/d in 

Russia in 2010. The Sediolskoye supply deal will provide Aladdin the funds towards the development of 

its remaining licences, after three years of net losses. Aladdin's future growth prospects will depend on 

the commercialisation of some of its other licences, particularly the oil-bearing West Uthinskoye licence. 

PetroNeft – Summary 

London-listed PetroNeft was established in 2005 to develop assets in West Siberia. The company owns 

Licence 61, which covers an area of 4,991sq km, with 100%. The licence is also located in the Tomsk 

region and contains two proven oil fields – Lineynoye and Tungolskoye – as well as around 25 additional 

prospective areas and further potential prospects that have been identified through seismic surveys. 

According to consultants Ryder Scott, the Lineynoye and Tungolskoye fields hold total proven, probable 

and possible (3P) reserves of 70.6mn bbl, while the additional and potential prospects are estimated to 

hold 3P reserves of 253mn bbl and exploration resource reserves (4P) of 100mn bbl. In early December 



2009, PetroNeft announced plans to drill nine wells on the licence, with the first one scheduled to be 

spudded in April 2010. 

In December 2009, PetroNeft was awarded the Ledovy licence in the Tomsk region. The licence does not 

include two producing oil fields – Grushevoye and Lomovoye – that are located in the area. However, 

PetroNeft believes that two undeveloped discoveries – Ledovoye and Sklonavaya – have significant 

potential, and under the agreement the company can use the existing infrastructure at the two producing 

fields, including the Vasyugan-Raskino oil pipeline, to develop other discoveries. Under the agreement, 

PetroNeft's three-year exploration programme will include the reprocessing of seismic and well data, the 

acquisition of 750km of new seismic data and the drilling of one well. It is targeting three drilling 

prospects, which are estimated to hold 55mn bbl of oil in place. The licence, which covers 2,447sq km, is 

the company's second in the area. 

Alliance Oil – Summary 

Independent oil company West Siberian Resources (WSR) merged with Russia-focused mid-sized 

Alliance Oil in April 2008. The US$2.5bn deal created a vertically integrated player with assets in Russia 

and Kazakhstan. Alliance's shareholders control 60% of the new entity and WSR's the remaining 40%. As 

of end-2009, the company had proven and probable (P2) reserves of 526mn bbl, output of 42,700b/d, 

refining capacity of 70,000b/d and a retail network of 255 stations in eastern Russia. During FY09, the 

company reported revenues of US$1.73bn and net profit of US$345mn. Revenues were down from 

US$2.72bn in 2008, while profits were up from US$45.97mn in the previous year. 

Others – Summary 

Spanish major Repsol YPF is reportedly in talks with Rosneft about acquiring a 25% stake in the 

Sakhalin-III project. 

AIM-listed Urals Energy is a sizeable independent focused on East Siberia. By early-2008 the company 

held P2 reserves of 822mn boe. However, following the collapse of a loan restructuring deal with 

Sberbank in the wake of the global financial crisis, Urals was forced to agree to divest to Sberbank its 

stakes in key Taas Yuriakh Neftegazodobycha and Dulisma operating units in mid-2009 as part of the 

loan repayment deal. The company’s future now looks uncertain with a hostile takeover or liquidation 

being a large threat. Its shares were suspended from AIM in July 2009. Ural’s aim to raise output to 

75,000b/d by 2013 is no longer feasible. In November 2007 Urals acquired a 35.5% in Taas, in what was 

at the time one of the largest deals by a Russian-based independent. 

PetroVietnam is seeking government approval to invest US$614mn in an oil E&P JV with Zarubezhneft. 

The partners were awarded four oil blocks in western Siberia in May 2008, beating the only other bidder, 

Rosneft. Russia and Vietnam signed an agreement to deepen E&P cooperation in 2006. The agreement 

was implemented through the award of the licences in Yamal-Nenets and also extends the life of the 



companies' first JV, Vietnam-based Vietsovpetro. PetroVietnam would have a 49% stake in the 

US$1.25bn JV, which will explore blocks N1, N2, N3 and N4 in Nenets. The blocks currently consist of 

13 fields and hold estimated oil reserves of around 572mn bbl. According to Zarubezhneft, the partners 

were planning to start drilling at the fields by end-2008 and expect to produce 80,365-100,457b/d within 

five to seven years. Zarubezhneft, which controls a 51% stake in the JV, will provide the remainder of the 

capital. 

In December 2009, PetroVietnam also established a gas partnership with Gazprom, the 49:51 

Gazpromviet, again mirroring a sister JV in Vietnam. The new JV will jointly develop the Nagumanov 

field in the Urals region. 

Japan's Mitsubishi and Mitsui are interested in acquiring stakes in the Sakhalin-III project in Russia's Far 

East, according to a report in Japanese newspaper Yomiuri Shimbun citing unnamed industry sources. 

The Japanese companies already hold 10% and 12.5% stakes respectively in the adjacent Sakhalin-II 

project, which supplies LNG to Japan. Their intention to farm in to the Gazprom-led Sakhalin-III 

development is therefore believed to be motivated by the expected cost synergies with Sakhalin-II and a 

desire to secure additional gas supplies. 

In October 2009, AIM-listed Matra Petroleum spudded its first appraisal well at the Sokolovskoe field 

in the Arkhangelovskoe licence in the Orenburg region of the Urals. The A-13 well is estimated to cost 

around US$4.5mn and is expected to be completed by the end of February 2010. 

Western Siberia-focused independent Exillon Energy launched a successful US$100mn IPO on AIM in 

December 2009, making it the first share offering by a Russian oil producer since the start of the financial 

crisis in mid-2008. Exillon, which is registered in the Isle of Man and headquartered in Dubai, acquired 

its first assets in early 2009, receiving permits for 10 oil fields in north-western Siberia. Its operations are 

split between two subsidiaries: Exillon TP, which operates five fields in the Timan-Pechora Basin in the 

Komi Republic and Exillon WS, which operates another five fields in Khanty-Mansiysk. The Exillon WS 

and TP fields were discovered in 1971 and 1988 respectively and are both producing an unspecified small 

amount of light oil. Despite the fields' long production history, Exillon believes the assets hold significant 

upside potential and is seeking to raise funds for their development through an IPO. 



Market Attractiveness Analysis 

Russia Energy Market Overview 

The June 2009 BP Statistical Review of World Energy attributes 79.0bn bbl of proven oil reserves to 

Russia, which is a possibly conservative total that still represents almost 7% of the world's oil. However, 

the end-2009 Oil & Gas Journal (OGJ) annual survey suggests just 60bn bbl. Large parts of Russia are 

under-explored, while there appears to be significant reserves potential in its share of the Caspian Sea. 

Gas reserves of 43,302bcm (BP data) account for more than 30% of the world total. 

In 2009, oil production was around 11.6% of the world's total at an estimated 10.15mn b/d, and Russia 

meets 22% of the world's gas demand. There are 42 oil refineries in Russia, many of which are incapable 

of meeting modern fuel standards. Total crude distillation capacity is around 5.55mn b/d. With 157bn 

tonnes of proven coal reserves, Russia ranks second in the world behind the US. 

Poor management during the Soviet era and a sharp decline in demand during the early 1990s undermined 

the coal industry. After a slight decline in 2002, production rebounded in 2003-2008, with 2008 output of 

327mn tonnes. According to the government's energy strategy, Russia should produce more than 400mn 

tonnes by 2020. Russia's adherence to the stipulations of the Kyoto Protocol may lower utility sector 

demand for coal. In a December 2008 BBC interview, the governor of the Kemerovo region, which is 

responsible for over half of the country's coal production, voiced concerns over the region's ability to 

sustain coal production growth. He noted that the region had already seen almost 200 rivers ruined after 

being used for mining activities. These environmental problems may hinder Russia's desire to keep 

increasing coal production. 

Gas is the dominant fuel in Russia, accounting for an estimated 56.2% of 2009 primary energy demand 

(PED). It is followed by oil at 18.3%, coal at 14.4%, hydro at 5.6% and nuclear with a 5.3% share of 

PED. Regional energy demand is forecast to reach 1,543mn toe by 2014, representing 17.0% growth over 

the period. Russia's estimated 2009 market share of 50.4% is set to fall to 49.7% by 2014. State gas 

monopoly Gazprom provides subsidised gas to the power industry through a deal with former monopoly 

supplier Unified Energy System (UES), meaning that price increases as part of a deregulation 

programme could make gas too costly for much of the Russian population. 

Russia's power sector includes more than 440 thermal and hydro-power plants (approximately 80 of the 

former are coal-fired), plus 31 nuclear reactors. A few generators in the far-eastern part of the country are 

not connected to the power grid. The system has a total electric generation capacity of almost 216 

gigawatts (GW), with 2009 generation at an estimated 984TWh. The collapse of the Soviet Union initially 

precipitated a dramatic decline in energy generation, (down 18% between 1992 and 1999), followed by a 

gradual recovery (up 18% between 2000 and 2009). 



The Russian government has stated that it intends to expand the role of nuclear and hydro-power 

generation in the future to allow for greater export of fossil fuels. Russia has an installed nuclear capacity 

of more than 21GW, distributed across 31 operational nuclear reactors at 10 locations, all west of the Ural 

Mountains. However, Russia's nuclear power facilities are ageing. Half of the country's nuclear reactors 

use the RBMK design employed in Ukraine's ill-fated Chernobyl plant. The working life of a reactor is 

considered to be 30 years -- and nine of Russia's plants are between 26 and 30 years old, with a further six 

approaching 25 years of age. 

The Russian Ministry of Atomic Energy predicts that by 2020 nuclear generation could reach 300TWh, 

more than double the 2003 level. However, many plants are due for decommissioning, and meeting this 

target will require between US$5bn and US$10bn per year of investment over the next decade. 

Russia has adopted the European Emissions Standards for fuels, although on a different timeframe. 

Russia phased out Euro-2 standard fuels in 2008 and hopes to phase out Euro-3 by the end of 2009. Euro- 

4 is expected to be allowed until 2013. In Europe, Euro-5 has already been introduced for most vehicles 

and Euro-6 is slated for implementation in 2014/2015 for all vehicles. This means that while upgrades to 

facilities are particularly important when the refined products are destined for export to the EU, even fuels 

used in Russia will need to meet higher quality standards. 

Russia's newest crude oil export terminal, the port of Kozmino, began operations in December 2009. The 

port sent its first cargo to Hong Kong. The oil exported via Kozmino port is sourced from East Siberia. It 

is transported to Kozmino from the Meget railway terminal, in the Irkutsk region. From there it is sent to 

the Skovorodino oil terminal, which started operations in October 2009. Kozmino terminal, which is 

operated by national oil midstream monopoly Transneft, is intended to be the terminus of the Eastern 

Siberia-Pacific Ocean (ESPO) pipeline, which is due to be completed in 2014-15. The Skovorodino oil 

terminal is the end point of Phase 1 of the ESPO pipeline, but Kozmino will receive oil delivered by rail 

from Skovorodino until the second phase has been completed. 

Russia may relax rules limiting offshore exploration and production (E&P) in the country to Rosneft and 

Gazprom, according to a report by the Moscow Times newspaper. According to the report, which cited 

deputy energy minister Sergei Donskoy, the proposal would allow subsidiaries of the two companies to 

join them in offshore exploration and could lead to international oil companies (IOCs) also becoming 

involved. 

In the Moscow Times article, published in March 2010, Donskoy claimed that the Natural Resources and 

Environment Ministry believes the two companies have insufficient resources to develop Russia's 

continental shelf on their own. Under a plan drafted by the ministry, both Gazprom and Rosneft would be 

allowed to share access with their subsidiaries and could farm out a stake of up to 50% in offshore 

projects to foreign companies. The proposal would also allow any of the subsidiaries of the two 



companies to develop offshore fields on their own or in partnership with other companies. The newspaper 

reported, however, that it is unclear whether the proposal has been submitted to the Russian cabinet. 

Under legislation passed in 2008, offshore fields in Russia can only be developed by companies in which 

the government owns a stake of 50% or greater. In addition, companies applying to work on the fields 

must have a five-year record of working on such projects, effectively limiting participation to Gazprom 

and Rosneft. It is arguable that this has damaged Russian investment in offshore areas. In 2008, the two 

companies invested only RUR56.4bn (US$1.9bn at current rates) in E&P offshore Russia, a rate which 

Donskoy claimed would mean ministry targets for offshore areas would take 165 years to fulfil. 

The fact that offshore projects are effectively limited to just two state companies, preventing other 

Russian and international companies from participating, has slowed the development of these areas. 

According to the Moscow Times, the CEO of ConocoPhillips, Jim Mulva, claimed in March 2010 that 

the legally-privileged position of Gazprom and Rosneft had led to slower growth for their privatelyowned 

rival Lukoil, in which Conoco holds a 20% stake (which it is reducing to 10%). If the ministry 

proposal is accepted, it could therefore present significant opportunities to IOCs. 

Russia is the major gas exporter to Europe but the reliability of its supplies in the past few years been 

causing concern, thanks to pricing disputes with transit states such as Ukraine, frequent pipeline incidents 

and the capriciousness of the Russian weather. The Kremlin sees Asia the future source of export growth, 

but gas pipeline projects to the east of the Ural Mountains remain in the planning stages. 

The country has an extensive gas export pipeline network bound for the western markets. Some of the 

infrastructure, however, has fallen into considerable disrepair, which is most acute in the poorer Former 

Soviet Union (FSU) countries that now serve as transit states on the way to the EU. In order to diversify 

its export routes, gain greater security of transport and maintain a closer grip on ex-communist states, 

Russia has been looking to construct new pipelines bypassing Eastern Europe. 



Oil & Gas Infrastructure 

Oil Refineries 

With a total processing capacity of 5.62mn b/d in 2009 according to the BP Statistical Review, Russia is 

the world’s third largest refiner after the US and China. Although the vast majority of this capacity dates 

from Soviet times, the country’s largest players such as Rosneft have invested in upgrading their facilities 

to meet stringent fuels quality standards, allowing many companies to export refined products, 

particularly diesel, to the EU. Russia has also followed suit in mandating cleaner fuels, introducing Euro- 

4 standards at the start of 2010 and preparing for the introduction of Euro-5 standards at the start of 2014. 

Refineries in Russia are mostly located west of the Urals, although significant capacity exists in Siberia – 

particularly West Siberia – along major pipelines. The country’s major refining centre is in the Volga- 

Urals regions around the Republics of Tatarstan and Bashkiria. Large refining cities include Ufa, the 

capital of Bashkiria, Samara and, further to the west, Yaroslavl. 

Rosneft is the largest player in the Russian refining sector, with seven major refineries, a total capacity of 

1.13mn b/d and a market share of nearly 21%. Other major companies involved in refining include 

Gazprom Neft with 964,000b/d (18%), Lukoil with 894,000b/d (16%) and TNK-BP with 560,000b/d 

(10%). There are also several slightly smaller refiners such as Surgutneftegaz, Bashneftekhim and 

Tatneft, as well as a small number of companies operating individual plants. Almost all refiners in Russia 

also control upstream assets, allowing companies to supply their own refineries through Transneft’s 

pipeline systems. The few companies that do not have upstream involvement generally operate plants of 

less than 50,000b/d, a category that together accounts for around 115,000b/d of Russian capacity. 

Ryazan Refinery: TNK-BP’s Ryazan facility is the company’s largest and most up-to-date refinery, with 

a nameplate capacity of 340,000b/d. As part of its wider downstream expansion plans, the company is 

investing US$150mn in the construction of an isomerisation unit at the plant. Following the introduction 

of tighter regulation regarding the lifecycle of road bitumen in 2010, TNK-BP looks likely to increase 

investment at the plant, which can produce the company’s polymer-modified TNK Alfabit brand of 

premium bitumen. 

Komsomolsk Refinery: Rosneft’s Komsomolsk refinery in Russia’s Far East is supplied with crude oil 

by rail from Western Siberia, over 2,000km away, as well as by pipeline from Sakhalin from Rosneft 

subsidiary Sakhalinmorneftegaz. The motor and jet fuels produced by the refinery are currently exported 

to Japan, South Korea and Vietnam via the Nakhodka tanker terminal and the Vanino tanker terminal. 

Planned Additional Capacity: In June 2007, Rosneft CEO Sergei Bogdanchikov announced plans to 

expand the company's refining capacity ninefold by 2015. Rosneft is currently upgrading its Tuapse and 

Komsomolsk refineries and said in 2008 that it was looking into constructing a new 240,000b/d plant near 

the port of Primorsk in Russia’s Far East, in partnership with Surgutneftegaz. Reports in October 2009 



suggested that the company was considering developing a 400,000b/d refinery in the Primorskiy region 

with China’s Sinopec. New generation plants making products compatible with European standards allow 

the company to export any surplus and position it well for the eventual tightening of transport pollution 

emissions in Russia. 



Table: Refineries Of 50,000b/d Capacity Or Greater In Russia 

Refinery Capacity (b/d) Owner (Contractor) Completed Details 

Angarsk 385,176 Rosneft 1955 Uses West Siberian Crude 

Kstovo 359,200 Lukoil 1958 

Ryazan 340,000 TNK BP 1960 

Kirishi (Kinef) 335,900 Surgutneftegaz 1966 

Yaroslavl (Yanos) 290,000 Slavneft 

Omsk 286,160 Gazprom Neft 1955 

Novo Ufa 285,000 Bashneftekhim 1951 

Perm 279,142 Lukoil 1958 

Moscow 242,995 Sibir Energy 1938 Operating at 200,000b/d 

Ufa 234,962 Bashneftekhim 1937 

Syzran 214,076 Rosneft 1942 

Volgograd 200,000 Lukoil 1957 

Ufaneftekhim 184,200 Bashneftekhim 

Salavat 168,300 Gazprom 1954 

Novokubishevsk 160,720 Rosneft 1951 

Komsomolsk 146,657 Rosneft 1942 

Achinsk 140,640 Rosneft 1982 

Cracking Saratov 134,387 Sidanco 1934 

Samara-Kubishev 130,585 Rosneft 1945 Uses Rosneft crudes 

Orsk 132,594 TNK BP 1935 

Saratov 130,000 TNK BP 1934 

Ukhta 126,518 Lukoil 

Nizhnekamsk 120,493 Tatneft 2002 

Tuapse 104,468 Rosneft 1929 Specialises in motor fuels 

Khabarovsk 94,000 Alyans Group 

Nizhnevartovsk 84,000 TNK BP 1998 

Others 115,971 - - 15 sub-50,000b/d refineries 

Total Capacity 5,423,540 - - - 

Planned Additional Capacity 

Primorsk 240,000 Rosneft 2014 With Surgutneftegaz 

Source: BMI 



Oil Terminals/Ports 

The country's biggest Baltic Sea port is located in Primorsk, with additional ports in St. Petersburg and 

Vysotsk. Additional export capacity is located at the Black Sea port of Novorossiysk, Russia’s second 

largest oil export facility. The Pacific port of Kozmino was completed in December 2009, to become 

Russia's third largest oil export facility. 

Primorsk 

Primorsk, near St Petersburg, was completed in 2001 and exports around 1.5mn b/d, according to the 

EIA, although it claims export capacity of around 3mn b/d. The terminal exports refined products as well 

as crude, with Transnefteproduct beginning shipments in 2008. 

Novorossiysk 

The port of Novorossiysk is Russia’s main Black Sea port for oil, exporting Russian crude and oil 

delivered by pipeline from Kazakhstan and Azerbaijan. According to the EIA, around 1mn b/d of Russian 

crude is exported via the Black Sea (mainly through Novorossiysk), then sent through the Bosphorus to 

the Mediterranean. In June 2010, Transneft claimed that two plans had been developed to reduce or cease 

oil exports via the Bosphorus in order to provide customers for the Samsun-Ceyhan oil pipeline. 

Kozmino 

Russia's newest crude oil export terminal, the port of Kozmino, began operations in December 2009. The 

port sent its first cargo to Hong Kong, underlining its focus on catering for Asian demand. Kozmino 

exports East Siberian crude that is transported from the Meget railway terminal in the Irkutsk region to 

the Skovorodino oil terminal, which started operations in October 2009. The Kozmino terminal, which is 

operated by national oil midstream monopoly Transneft, is intended to be the terminus of the Eastern 

Siberia-Pacific Ocean (ESPO) pipeline, which is due to be completed in 2014-15. The Skovorodino oil 

terminal is the endpoint of Phase 1 of the ESPO pipeline, but Kozmino will receive oil delivered by rail 

from Skovorodino until the second phase has been completed. Each railway oil cargo will hold 4,600- 

4,800 tonnes (33,700-35,200bbl), according to ESPO's website. 

Oil Pipelines 

The port of Kozmino is a vital part of Russia's Asia Pacific economic strategy. Located in the Sea of 

Japan, it offers links to the main regional consumers: Japan, South Korea and China. The port will 

provide an outlet to oil producers in East Siberia, including Rosneft, Surgutneftegaz and TNK-BP. Once 

the ESPO pipeline is extended to Kozmino, the port will play a major role in Russia's energy export 

sector. 

East Siberia Pacific Ocean (ESPO) 

Once completed, the 4,700km ESPO pipeline will overtake the Europe-bound Druzhba (Friendship), 

making it the world’s longest oil pipeline. Transneft’s ESPO will be the first Russian pipeline 



transporting oil to Asia. The pipeline has experienced serious delays due to construction difficulties, 

environmental concerns and price disputes, but received a much-needed boost from a US$10bn Chinese 

loan in February 2009. 

ESPO is being built in two stages. The first 2,757km stage will link Taishet in the Irkutsk region to 

Skovorodino in the Amur region and has capacity of 600,000b/d. From Skovorodino, ESPO will branch 

out to China, via a 70km connector, which will supply northern China with 300,000b/d from 2011. The 

first section of the pipeline had to be moved to 400km away from the ecologically sensitive Lake Baikal, 

missing the end-2008 deadline by a year and coming online in late-2009. 

The second leg of ESPO will cover 2,100km from Skovorodino to Kozmino on the Pacific and will 

increase the capacity of the entire pipeline to 1.6mn b/d. The second phase is not expected to be 

completed until 2014/2015. ESPO will be supplied primarily by Russian oil companies Rosneft, TNK- 

BP and Surgutneftegaz from untapped fields in East Siberia. It is hoped that this will allow Russia to 

replace dwindling output from West Siberia. Until ESPO Phase 2 comes online, oil from Skovorodino is 

transported by rail to the Pacific port of Kozmino for export. 

On August 29 2010, Vladimir Putin officially inaugurated the Russian section of the ESPO pipeline spur 

from Skovorodino to the Chinese city of Daqing. The 70km pipeline will run to the Chinese border, 

where it will connect with the 927km Chinese section of the spur, whose construction was completed in 

June 2010. The pipeline is expected onstream by October 31 2010, and will supply CNPC with 

300,000b/d in 2011-2030. 

Purpe-Samotlor 

Transneft began constructing a new major link from the Yamal Autonomous District in March 2009. The 

430km Purpe-Samotlor pipeline will provide a better export route from crude volumes from the giant 

Vankor oil field and will speed up the development of other deposits in the Yamal and north-western 

Krasnoyarsk regions. The pipeline will run from the village of Purpe to the Samotlor oil field in the 

Khanty-Mansiysk region further south. The link will cost US$1.34bn and is due to be commissioned in 

2012. Initial capacity will be 500,000b/d, which could be expanded at a later date. 

The Purpe-Samotlor pipeline will replace the longer and smaller-diameter lines for transporting Vankor 

crude. The new link will cut about 100km from Vankor's route to ESPO trunkline. As well as providing 

transit capacity for further expansion at Vankor, it will benefit TNK-BP's Suzun, Tagul and Russkoe field 

developments on the Yamal peninsula. 

Baltic Pipeline System 

The Baltic Pipeline System (BPS) has two phases: BPS-1 and BPS-2. The pipelines transport oil from 

West Siberia and the far north of the country to the Baltic Sea terminal of Primorsk. The pipeline system 

began operations in 2001 and reached its full design capacity in 2006. Construction of a second phase of 

the network, known as BPS-2, started in June 2009. The pipeline was designed to expand the existing 



system and bypass Belarus, which was involved in oil transit disputes with Russia in 2006 and 2010. The 

1,016km-long BPS-2 pipeline will transport some 1mn b/d of oil from Unecha, close to the border with 

Belarus, to Ust-Luga and from there the crude will be transported on by tanker. The construction of the 

pipeline is expected to be completed in 2012 at a cost of around US$3.9bn. 

The construction of the new pipeline demonstrates Russia's strategy of diversifying its oil and gas export 

infrastructure, bypassing its traditional transit countries – Belarus, Poland and Ukraine. The pipeline's 

construction was not welcomed by these transit countries, whose positions will be weakened as the new 

pipeline allows Russia to supply more oil directly to Western Europe. Once the BPS-2 pipeline becomes 

operational, Russia is likely to reduce supplies through the Druzhba oil pipeline. 

Druzhba 

The Druzhba pipeline, one of Russia’s main oil export routes, was completed in 1964 and currently has a 

capacity of around 1.4mn b/d. The Russian section of the pipeline begins in the Republic of Tatarstan, 

which serves as a gathering point for oil from other regions and from Kazakhstan. The pipeline runs west 

to Unecha in Bryansk Province where it splits into two. 

A spur known as the Northern Druzhba continues north through Belarus and Lithuania where it formerly 

supplied the Novopolotsk and Orlen Lietuva (Mažeikių) refineries and the Ventspils and Butinge oil 

terminals. The Northern Druzhba pipeline was closed in 2006 when Russia claimed it had been damaged. 

It has not yet been repaired. The main Druzhba pipeline continues to Mozyr in Belarus, where it splits 

into the Western Druzhba, with a capacity of up to 1mn b/d, and the 1.2mn b/d Southern Druzhba. 

LNG Terminals 

Western Druzhba crosses Poland and then runs into Germany, while Southern Druzhba leads into Ukraine 

and from there into central and south-eastern Europe. The presence of a large number of transit countries 

has led to risks of disruption to supply, particularly in Belarus, which has been in dispute with Russia 

over energy imports several times. 

Sakhalin-II 

Russia’s first LNG export terminal, Sakhalin-II, came onstream in March 2009. The second major area 

for LNG is the Barents Sea and the Yamal-Nenets Autonomous Region. The most advanced project is the 

offshore Shtokman field, which is being developed by Gazprom in partnership with French major Total 

and Norway’s Statoil. The project, which will supply pipeline gas to Europe and LNG to Europe and 

North America, has estimated costs of US$30bn. Some 70-80% of the LNG will be sold under long-term 

contracts, with Spain a likely buyer. A consortium led by Norway’s Aker Solutions won the EUR25mn 

FEED contract for the floating production unit (FPU) at Shtokman in February 2009. Italy’s Technip is 

undertaking the FEED for the onshore gas facilities including the LNG plant. 

Shtokman LNG (Planned) 



With an estimated 3.2tcm of gas reserves, Shtokman is believed to be the biggest undeveloped offshore 

gas field in the world. The field is being developed by SDC, in which Norway's Statoil holds a 24% 

stake, France's Total has 25% and Gazprom the remaining 51%. Gas produced in the third development 

phase of the Shtokman gas field will be exported solely as LNG, while about half the gas produced at the 

field during phases one and two will be exported via pipelines and half as LNG. First gas is expected to 

be exported via pipeline to Europe in 2013, with LNG exports to follow in 2014. Increasing the 

proportion of gas that is exported in the form of LNG will provide more export options. 

Total announced in May 2010 that its plans for the development of the Shtokman natural gas field in the 

Barents Sea in Russia are on course, and an FID is due in 2011. The investment decision will be made in 

March 2011 and a decision on the gas liquefaction plans will be made by the end of the same year. 

Yamal LNG (Planned) 

Yamal LNG, a JV between Gazprom and Novatek, is the operator of the LNG project aiming to 

commercialise the Tambeyskoe group of fields. Through its controlling stake in the Yamal LNG 

operating vehicle, Novatek is the operator of the South (Yuzhno)-Tambeyskoe gas field onshore the 

Yamal-Nenets region, which is expected to begin exporting gas by around 2018. Although no firm project 

timetable has been set, Gazprom has previously said that it aims to start producing the first 15bcm of gas 

in Yamal by 2011 and then to gradually boost volumes to an ambitious 250bcm per year. 

Novatek is in no hurry to bring a foreign partner into the project, the company's CEO told Reuters in a 

July 8 interview. A number of IOCs as well as the government of Qatar have made overtures to Novatek 

about joining the Yamal LNG scheme. Novatek and its minority partner Gazprom, however, have so far 

resisted bringing in such a partner. 

Pechora LNG (Planned) 

Russian investment company Alltech Group is considering building an LNG export plant in the Nenets 

district. The plant, dubbed Pechora LNG, would have an initial capacity of 2.6mn tpa and is expected 

onstream in Q415, Alltech’s oil arm, CH-Oil & Gaz, stated in December 2009. The plant would 

commercialise gas reserves at the Kumzhinskoe and Korovinskoe fields in the Timan-Pechora Basin, the 

licence for which Alltech acquired in 2007. 

Vladivostock LNG (Planned) 

The Japanese and Russian governments have signed a preliminary agreement to build an LNG export 

terminal in Vladivostok, according to a July 10 Nikkei report. According to the Nikkei report, an official 

agreement on construction of the plant is expected to be signed when Russian president Dmitry 

Medvedev attends the Asia-Pacific Economic Cooperation (APEC) summit in Tokyo in November. Few 

details of the plan have been disclosed, though the facility is expected to have a liquefaction capacity of 

6.9bcm, which will be delivered by pipeline from eastern Russia. First deliveries could come as early as 

2017, according to the report. It is as yet unclear where gas for the project will be sourced. 



Gas Pipelines 

Blue Stream 

Russia’s first post-Soviet westbound pipeline system is Blue Stream, which carries gas directly to Turkey 

under the Black Sea. Blue Stream is a JV between Gazprom and Italy’s Eni. The US$3.4bn system 

consists of two pipelines that run for 1,213km from southern Russia to Ankara in Turkey. The 385km 

subsea sections of the pipelines run from the Beregovaya compressor station in Russia to a gas terminal 

outside the Turkish port of Samsun. The pipelines were completed in 2004 and were officially 

inaugurated in 2005, since when they have been gradually ramped up to their maximum capacity of 

16bcm per annum. It is the world's deepest underwater pipeline system and reaches a maximum depth of 

2,150m below the surface of the Black Sea. 

There has since been much talk of expanding the pipeline both geographically and in terms of capacity, 

including branches to Italy and the Middle East. In February 2006, Turkish energy ministry officials 

claimed that talks were under way between Gazprom and Turkish state-run gas distributor Botaş about 

extending the pipeline through Turkey to Syria, Lebanon, Israel and Cyprus in a project known as Blue 

Stream II. Speaking during an official visit to Turkey in June 2010, however, Putin said Israel is now 

likely to be excluded from the Blue Stream II project. Putin said that gas discoveries in recent years in 

Israel have reduced the country's future gas import projections, making an extension of the pipeline to 

Israel unnecessary. 

South Stream 

Emboldened by Blue Stream’s success, in November 2007 Gazprom and Eni agreed to construct a new 

trans-European gas pipeline that will cost the companies EUR10bn by the time it comes onstream in 

2013/14. The 900km South Stream pipeline is routed via the Black Sea to south-eastern Europe. In 

Bulgaria, the pipeline will split into a northern route going to Austria via Romania and Hungary, and a 

southern route crossing the Balkan Peninsula to Italy. The northern route passes through the same 

countries as the 30bcm Nabucco pipeline from Turkey to Austria, which the EU is promoting in order to 

reduce dependence on Russia. 

Government officials of Bulgaria, Greece, Italy and Russia met in May 2009 to sign transit agreements 

for South Stream, creating separate JVs between Gazprom and the countries’ gas distribution companies. 

These JVs will be responsible for the design, construction and operation of the pipeline within their 

respective territories. Slovenia joined the project later that year, while Turkey agreed to let the pipeline 

pass under its territorial waters in return for a transit fee in August 2009. A deal between Gazprom and 

Eni has been signed under which the two companies have agreed to double the pipeline's capacity to 

63bcm. Austria now remains the last country on South Stream's preliminary route yet to sign up for the 

project. 



The South Stream was originally a 50:50 JV between Gazprom and Eni, but France’s EdF signed an MoU 

to take a 10% stake in November 2009. Under the agreement, EdF can buy as much as 6bcm per year. 

Following the finalisation of the contracts, the partners are hoping to take a FID on the project in 2010. 

In April 2010, EdF was awarded a larger, 20% stake, in the pipeline project. The 20% stake is to be taken 

equally from the two existing South Stream project partners, Gazprom and Eni. The decision was 

announced following discussions between Vladimir Putin and his Italian counterpart Silvio Berlusconi on 

April 26, according to a report by The Moscow Times. Putin, who declared the granting of a 20% stake to 

EdF, added that a partnership deal would be signed between EdF, Gazprom and Eni during the St. 

Petersburg International Economic Forum in June. He also said that following the signing of agreements 

with the Austrian government and oil company OMV on April 24, there were now no expectations of 

further delays to the project. Putin confirmed that the main terms for the admission of EdF to the project 

had been completed and that South Stream was on course for start-up in H215. 

Nord Stream 

Russia’s second major export pipeline project is Nord Stream. The 1,200km pipeline is designed to carry 

an eventual 55bcm annually under the Baltic Sea from Vyborg to Greifswald in Germany. The project is 

51% owned by Gazprom along with German partners E.ON Ruhrgas and Wintershall, each with 20%, 

and later Dutch entrant Gasunie with 9%. In December 2008, French energy group GDF Suez signalled 

its intention to participate in Nord Stream as a minority partner. After more than a year of negotiations, 

GDF Suez is expected to receive 4.5% each from Nord Stream's two German partners, under a letter of 

intent (LoI) signed in March 2010. 

Construction of the onshore segment began in 2005 and was completed by early-2010, while construction 

of the underwater segment stalled owing to ongoing environmental concerns, rising costs, technical 

obstacles and political objections from neighbouring states. The project, however, made major 

breakthroughs in late-2009, securing final approvals from transit states Sweden, Finland and Denmark. 

The undersea construction is now set to begin on April 1 2010. At its start-up in 2011, the pipeline will 

have a capacity of 27.5bcm. The second 27.5bcm phase is planned to come onstream in 2012. 

Russia-South Korea Gas Interconnector 

South Korea and Russia are expected to begin a new round of talks on a gas interconnector between the 

countries, the head of foreign projects at Russia's state-run Gazprom, Stanislav Tsygankov, told industry 

data provider Platts in April 2010. Two potential gas pipeline options between Russia and South Korea 

are on the table: an overland pipeline via North Korea and a direct undersea pipeline. The first option 

suffers from severe geopolitical risks while the second option presents formidable technological and 

financial challenges. In November 2008, state-run Korea Gas (Kogas) announced its intention to team up 

with Gazprom to build an undersea gas pipeline from Russia if plans for an overland transit through North 

Korea fail. With the erratic Pyongyang government under Kim Jong-il announcing periodically that it will 



end all political and military agreements with Seoul, the latter option seems unfeasible, despite the north's 

opportunity to earn up to US$100mn a year in transit fees. 



SWOT Analysis 

Russia Business Environment SWOT 

Strengths • The post-1998-crisis economic rebound, combined with significant reductions in 

personal and corporate income tax rates, has made Russia a much more attractive 

place to do business. 

Weaknesses • The operating environment remains hazardous on a number of fronts, with many 

foreign investors put off by poor legal safeguards, high levels of bureaucracy and 

corruption, and the Kremlin's apparently politically motivated campaign against 

foreign oil firms. 

Opportunities • Despite Russia's poor investment image in the West, the benefits of its immense 

natural resources wealth and large and rapidly growing domestic market are 

significant incentives for potential foreign direct investors. 

• The government has made fighting corruption a key priority and we expect sweeping 

legislative changes to significantly enhance the capacity of corruption fighting 

institutions in the medium term. 

Threats • State influence over business is on the rise. Most recently, foreign operators in the 

energy sector have come under pressure to allow state-owned firms greater 

involvement in their projects. Nevertheless, the worst-case scenario of a reversal of 

the 1990s privatisations appears unlikely. 

• Given very low confidence in the domestic banking industry, the central bank's 

efforts to restructure the sector could destabilise it further. 



Risk-Reward Ratings 

Business Environment Ratings 

Central/Eastern Europe Region 

The CEE region comprises 15 countries, including the new EU member states, Russia and the four 

leading Central Asian hydrocarbons producers. State influence remains very high, and is arguably 

increasing in both Russia and Kazakhstan. There has been widespread privatisation progress in the EU 

states, but far less movement in the other key states. Kazakhstan's moves to take a bigger share of the 

Kashagan project and to modify licensing laws are, we hope, an isolated example, although Russian tax 

tweaks, environmental claims and attempted asset re-nationalisation have undermined its already 

unattractive licensing and regulatory regime. Oil production growth for the period to 2014 ranges from a 

negative 27% for Croatia to a positive 56% in Turkmenistan, while oil demand growth ranges from 6% to 

31% across the region. Gas output is forecast to fall by 18% in Romania, but rise 55% in Azerbaijan. The 

range for forecast gas consumption growth is from 10% to 81%. The political and economic environment 

varies, depending partly on market maturity and EU membership. 

Composite Scores 

Composite Business Environment scores are calculated using the average of individual Upstream and 

Downstream ratings. Kazakhstan and Azerbaijan continue to dominate the top of the regional league 

table, taking first and second places with respective scores of 63 and 61 points out of a possible 100. 

Slovenia and Uzbekistan now share the final place in the rankings, with a composite upstream and 

downstream score of 43 points out of the 100 available. The points spread in the CEE region is 

considerably narrower than elsewhere, with the lowest-ranked country having 68% of the score allocated 

to the highest-ranked. Russia now shares third place with Poland, but with no immediate chance of 

catching the two main Central Asian energy powerhouse states. Turkey, included for the first time, is a 

challenger for Poland's position, while Romania and Ukraine are closely matched just above the middle of 

the league table, ahead of Hungary and the Czech Republic with limited upstream resource potential. 

Slovakia and Croatia are struggling near the foot of the table, but should be able to stay in front of 

Slovenia and Uzbekistan. 



Table: Regional Composite Business Environment Rating 

Upstream Rating 

Downstream 

Rating Composite Rating Rank 

Kazakhstan 73 53 63 1 

Azerbaijan 70 52 61 2 

Poland 56 58 57 3= 

Russia 53 60 57 3= 

Turkey 53 59 56 5 

Romania 51 53 52 6 

Ukraine 44 57 51 7 

Czech Republic 46 53 49 8 

Hungary 46 49 48 9 

Bulgaria 56 36 46 10 

Turkmenistan 46 44 45 11= 

Croatia 46 43 45 11= 

Slovakia 45 42 44 13 

Uzbekistan 46 41 43 14= 

Slovenia 41 44 43 14= 

Source: BMI. Scores are out of 100 for all categories, with 100 the highest. 



Upstream Scores 

Kazakhstan and Slovenia are the best and worst performers in this segment, showing that the overall 

pecking order is somewhat different from that for combined scores. Azerbaijan is second, itself having a 

very useful 14-point lead over Bulgaria. Turkmenistan's hydrocarbons resources mean it has shifted 

further from the foot of the table, having caught up with Croatia and Hungary to share eighth place. 

Uzbekistan has also mounted a successful challenge for mid-table status. Bulgaria and Poland are tied in 

third place, ahead of Turkey and Russia in joint fifth place. Long term, Russia should be able to move 

higher, subject to an improved country risk and licensing/regulatory environment. Ukraine has the 

potential to challenge Slovakia for 13 th place, and should be able to keep clear of bottom-ranked Slovenia. 

Table: Regional Upstream Business Environment Rating 

Limits of Potential Returns 

Risks to the Realisation of 

Potential Returns 

Upstream 

Market 

Country 

Structure 

Limits 

Industry 

Risks 

Country 

Risk 

Risks 

Upstream 

Rating 

Rank 

Kazakhstan 80 75 79 65 47 59 73 1 

Azerbaijan 69 85 73 75 42 63 70 2 

Bulgaria 61 50 58 45 64 52 56 3= 

Poland 38 80 48 75 72 74 56 3= 

Turkey 41 65 47 70 61 67 53 5= 

Russia 71 30 61 30 43 35 53 5= 

Romania 43 55 46 65 60 63 51 7 

Hungary 24 80 38 60 74 65 46 8= 

Croatia 29 55 35 70 70 70 46 8= 

Turkmenistan 71 45 65 40 30 37 46 8= 

Uzbekistan 43 40 42 45 27 39 46 8= 

Czech Republic 28 70 38 55 78 63 46 8= 

Slovakia 24 70 35 65 74 68 45 13 

Ukraine 43 50 44 45 42 44 44 14 

Slovenia 28 60 36 40 81 54 41 15 

Source: BMI. Scores are out of 100 for all categories, with 100 the highest. The Upstream BE Rating is the principal rating. It 

comprises two sub-ratings 'Limits of Potential Returns' and 'Risks to Realisation of Returns', which have a 70% and 30% weighting 

respectively. In turn, the 'Limits' Rating comprises Power Sector and Country Structure, which have a 75% and 25% weighting 

respectively. They are based upon the oil and gas resource base/growth outlook and sector maturity (Upstream) and the broader 

industry competitive environment (Country). The 'Risks' rating comprises Market Risks and Country Risk, which have a 65% and 

35% weighting respectively and are based on a subjective evaluation of licensing terms and liberalisation (Market) and the industry's 

broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk Ratings. The ratings structure is aligned 

across the 14 Industries for which BMI provides Business Environment Ratings methodology, and is designed to enable clients to 

consider each rating individually or as a composite, with the choice depending on their exposure to the industry in each particular 

state. For a list of the data/indicators used, please consult the appendix. 



Russia Upstream Rating -- Overview 

Russia has a share of fifth place with Turkey in BMI's updated Upstream Business Environment Ratings, 

aided by unrivalled hydrocarbons resources. Its oil and gas reserves account for much of the upstream 

score, but licensing, privatisation and country risk factors are less impressive. Medium-term scope exists 

for Russia to challenge Bulgaria and Poland above it, although the major Caspian states are likely to 

remain out of reach. 

Russia Upstream Rating -- Potential Returns 

Upstream Market: On the basis of upstream data alone, Russia is the joint second most attractive state in 

the CEE region, alongside Turkmenistan. This reflects the highest-placed oil and gas reserves, fifthranked 

oil production growth outlook and gas reserves to production ratio (RPR). 

Country Structure: Influencing Russia's fourth-highest position in the Limits to Potential Returns 

section is its unenviable country structure, which takes last place, behind even Uzbekistan. The state has 

greater ownership of upstream assets than elsewhere in the region -- and the industry features relatively 

few non-state concerns. 

Russia Upstream Rating -- Risks To Potential Returns 

Industry Risks: Russia is ranked last, behind even Turkmenistan, in the Risks to Realisation of Potential 

Returns section of our ratings. Its last position for Industry Risks is attributable to a poor licensing 

environment, and limited near-term privatisation prospects. 

Country Risks: Russia's broader country risk environment is unexceptional and ranked 11 th behind 

Kazakhstan. The best, and only respectable, score is for long-term policy continuity. Physical 

infrastructure barely matches the regional average, while corruption is a key risk for private companies. 

Furthermore, their ability to operate is weakened by the country's rule of law. 



Downstream Scores 

Russia and Bulgaria now bracket the 13 other CEE states in the downstream rankings, with Russia now 

challenged by second-placed Turkey, in spite of the size of its fuels market and refining capacity. 

Turkey's risk profile is substantially better and it may be able to challenge for regional leadership over the 

medium term. Poland is just a point further back and also a potential regional leader. Ukraine is now just 

one point behind Poland, but is unlikely to challenge it during the next few quarters. Kazakhstan, the 

Czech Republic and Romania are squabbling over fifth place, having edged ahead of Azerbaijan. 

Turkmenistan is now on the same score as Slovenia and there is little to choose between Croatia, Slovakia 

and Uzbekistan near the foot of the table. 

Table: Regional Downstream Business Environment Rating 

Limits of Potential Returns 

Risks to the Realisation of 

Potential Returns 

Downstrea 

m Market 

Country 

Structure 

Limits 

Industry 

Risks 

Country 

Risk 

Risks 

Downstrea 

m Rating 

Rank 

Russia 71 72 71 20 54 34 60 1 

Turkey 49 74 55 80 51 69 59 2 

Poland 40 80 50 85 61 75 58 3 

Ukraine 57 60 58 65 45 57 57 4 

Czech Republic 33 56 39 100 62 85 53 5= 

Kazakhstan 67 46 62 20 50 32 53 5= 

Romania 47 56 49 70 48 61 53 5= 

Azerbaijan 61 50 58 25 59 39 52 8 

Hungary 32 44 35 95 62 82 49 9 

Turkmenistan 51 26 45 40 48 43 44 10= 

Slovenia 26 38 29 85 70 79 44 10= 

Croatia 36 38 36 65 54 60 43 12 

Slovakia 24 40 28 85 58 74 42 13 

Uzbekistan 41 34 39 40 53 45 41 14 

Bulgaria 23 42 28 60 48 55 36 15 

Source: BMI. Scores are out of 100 for all categories, with 100 the highest. The Downstream BE Rating is the principal rating. It 

comprises two sub-ratings 'Limits of Potential Returns' and 'Risks to Realisation of Returns', which have a 70% and 30% weighting 

respectively. In turn, the 'Limits' Rating comprises Power Sector and Country Structure, which have a 75% and 25% weighting 

respectively. They are based upon the downstream refining capacity/product growth outlook/import dependence (Downstream) and the 

broader socio-demographic and economic context (Country). The 'Risks' rating comprises Market Risks and Country Risk, which have 

a 60% and 40% weighting respectively and are based on a subjective evaluation of regulation and liberalisation (Market) and the 

industry's broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk Ratings. The ratings structure is 

aligned across the 14 Industries for with BMI provides Business Environment Ratings methodology, and is designed to enable clients 

to consider each rating individually or as a composite, with the choice depending on their exposure to the industry in each particular 

state. For a list of the data/indicators used, please consult the appendix. 



Russia Downstream Rating -- Overview 

Russia is at the top of the league table in BMI's updated Downstream Business Environment Ratings, 

ahead comfortably of Turkey and Poland. There are a few particularly high scores, but there is some risk 

from Turkey over the longer term. There are excellent scores for refining capacity, oil and gas demand, 

population and nominal GDP. 

Russia Downstream Rating -- Potential Returns 

Downstream Market: On the basis of downstream data alone, Russia ranks first among the region's 15 

countries, above Kazakhstan. This is attributable to the country's first-placed refining capacity and oil/gas 

demand, and third-ranked refining capacity growth potential. 

Country Structure: Russia ranks first in terms of the Limits to Potential Returns section, and its Country 

Structure has third place in the region, behind Turkey. Growth in GDP per capita is the second-highest for 

the entire region. Population and nominal GDP rank first. There is still considerable state ownership of 

downstream assets, and the downstream industry is only moderately competitive. 

Russia Downstream Rating -- Risks To Potential Returns 

Industry Risks: In the Risks to Realisation of Potential Returns section of our ratings, Russia is ranked 

second from last, ahead only of Kazakhstan. Its joint lowest score with Kazakhstan for Industry Risks 

reflects the harsh regulatory regime and stagnant privatisation trend. 

Country Risks: Its broader country risk environment is ranked equal seventh alongside Croatia. The 

scores for rule of law and legal framework let the country down badly, and it fares little better in terms of 

physical infrastructure. Operational risks for private companies are reduced by the state's high scores for 

short-term economic external risk, short-term economic growth risk and short-term policy continuity. 


Russia Oil & Gas Competitive Intelligence Report 2010 

Business Development Directory 

Alfa Group 

11 Bolshoyk Savinskiy 

Office 351 

Moscow 

119435 

Russia 

Tel: +7 (495) 787 0077 

Fax: +7 (495) 792 5235 

Email: info@ctf.ru 

Website: www.alfagroup.ru 

Key presonnel 

CIO: Mr Pavel Pestrikkov 

Group Portfolio Management & Control Director: Mr Vladimir Ashurkov 

Finance, Corporate Development & Control Director: Mr Nigel Robinson 

Corporate Relations Manager: Ms Natalia Dymova General Management 

local statistics 

Established: 1989 

Business Activity 

Alfa Group Consortium (Russia) is one of the country’s largest privately owned 

financial-industrial conglomerates, with interests in the oil and gas, commodities trading, 

commercial and investment banking, insurance, retail trade and telecommunications 

sectors. 

Industry Classification 

Oil & Gas 

Banking/Finance 

Telecoms/Communications 

Insurance 

nationality/trade afiliation 

Russia 

Alians Group 

39 Sivtsev Vrajek Per 

Moscow 

119002 

Russia 

Tel: +7 (495) 745 5656 

Fax: +7 (495) 745 5658 

Email: ga@ga.ru 

Website: www.ga.ru 

Key presonnel 

President: Mr Musa Bazhaev 

Vice President: Mr Igor Sarajev 

Vice President - Finance: Mr Dmitry Markov 

Corporation Director: Mr Sergey Bakov 


Established: n/a 


Oil & Gas 

Energy/Utilities 


Russia 

Alstom 

18 Schipok Street Building 2 

Moscow 

115093 

Russia 

Tel: +7 (495) 231 2949 

Fax: +7 (495) 231 2945 

Email: info@power.alstom.com 

Website: www.alstom.com 

Key presonnel 

President - Russia: Mr Patrick Tascal 

Finance Director: Mr Vincent Lery 

Administration Officer: Mrs Galina Nikitina 

Head of Information Technology: Mr Victor Nikitiuk 

Human Resources Manager: Ms Larisa Sukhorukikh 




Alstom (Russia) has manufacturing facilities in Moscow and specialises in design and 

engineering of gas turbines and their components as well as in the full-cycle production of 

gas turbine blades and other components. 


Electronics/Electrical 

Manufacturing 

Oil & Gas 


Electric 

Distribution/Transport/Transmission 

Power Generation 


France 

Subsidiary of Alstom, France 

Argus Ltd 

9 Skakovaya Street, 4/F, 4/F 

Moscow 

125040 

Russia 

Tel: +7 (495) 741 4817 

Fax: +7 (495) 741 4818 

Email: argcis@arguslimited.com 

Website: www.arguslimited.com 

Key presonnel 

President: Mr Michael Rae 

Vice President: Mr Dmitry Kanevskey 

General Director: Mr Anton Rae 

Operations Director: Mr David Lax 

Commercial & Marketing Director: Mr Vlad Kurbatov 

Head of Sales: Mr Konstantin Lyubimov 




Argus Limited (Russia) supplies pipeline construction equipment and electronics repair 

equipment. The company also has representative offices in Krasnodar, Baku, Almaty and 

Ashkhabad. 


Machinery/Equipment 

Construction/Engineering 

Oil & Gas 


USA 

Representative Office for Argus Limited USA, USA 

AT Kearney 

Kosmodamianskaya Naberezhnaya, 52/1 

Riverside Towers 

Moscow 

115054 

Russia 

Tel: +7 (495) 258 5019 

Fax: +7 (495) 258 5016 

Email: info@atkearney.ru 

Website: www.atkearney.ru 

Key presonnel 

Managing Director: Mr Ruslan Korzh 

General Manager: Mr Alla Khaitova 

Head of Technical: Mr Dmitry Klur Pavlov 

Finance Manager: Mr Vladimir Berezhnov 

Marketing Manager: Miss Irna Kuzminykh 




AT Kearney (Russia) provides strategic consulting services in Russia, Ukraine and other 

CIS countries. 


Consultancy 

Telecoms/Communications 


Oil & Gas 

Aviation/Defence 


USA 

Subsidiary of AT Kearney Inc, USA 

BJ Services Company 

M.Tirogovskaya Street 

House 18, Building 1, Office 403 

Moscow 

119435 

Russia 

Tel: +7 (495) 937 9828 

Fax: +7 (495) 933 3635 

Website: www.bjservices.com 

Key presonnel 

Finance Controller: Mr Ronald Pinto 

Country Manager: Mr Brent Robert Davies 

Business Development Manager: Mr Ryan Elder 




BJ Services Company (Russia) provides pumping services to oil and gas firms. 


Services 

Oil & Gas 


USA 

Subsidiary of BJ Services Company USA, USA 



Capital Equipment and Technology Corp 

(CETCO) 

Messengers lane., 5, p.1 

Moscow 

105005 

Russia 

Tel: +7 (495) 232 1002 

Fax: +7 (495) 232 1003 

Email: info@cetco.ru 

Website: www.cetco.ru 

Key presonnel 

CEO: Mr Alexander Chudnovets Senior Management 

Finance Manager: Mr Aleksandr Gyzenko 

Head of Human Resources: Mrs Kate Tverdoxleb 



No of Employees: 50 


CETCO (Russia) represents a number of Western oilfield, mining and airport equipment 

manufacturers. The company’s clients have included regional and national companies, 

including Gazprom, Gazflot, Surgutneftegas, Tatneft, LUKOIL, Yukos and Sidanco. 



Oil & Gas 

Mining 


USA 

Chevron Lubricants CIS 

7 Gasheka Street 

Moscow 

123056 

Russia 

Tel: +7 (495) 544 5556 

Fax: +7 (495) 544 5557 

Website: www.chevronlubricants.com 

Key presonnel 

Sales Director: Mr Ian Bennett 

Finance Manager: Ms Elena Kotliar 

Head of Legal: Miss Galina Glazkova 

Human Resources Manager: Mrs Anastasia Kristova 

Supply Chain Manager: Miss Elena Kutareva 




Petrochemicals 

Oil & Gas 

Chemicals 


USA 

Subsidiary of Chevron Corporation, USA 

Chevron Neftegaz Inc 

Rakhmanovsky Pereulok, 4 dom 2 

Moscow 

127051 

Russia 

Tel: +7 (495) 258 2700 

Fax: +7 (495) 258 2727 

Email: atsm@chevron.com 

Website: www.chevron.com 

Key presonnel 

President & General Manager: Mr Darrell Cordry 

Marketing Manager: Ms Sabina Abudaeva 




Chevron Neftegaz Inc (Russia) is one of the largest investors in the Russian oil and gas 

infrastructure through its investment in the CPC. With a 15% equity stake, Chevron is the 

largest private shareholder in the CPC, which was established in the early 1990s by the 

governments of the Russian Federation, the Republic of Kazakhstan and the Sultanate 

of Oman. In December 1996, the governments of Russia and Kazakhstan signed the 

CPC Restructuring Agreement, redistributing 50% of CPC’s equity shares among several 

private international petroleum companies. 


Oil & Gas 

Exploration/Extraction 



USA 

Russia 

Subsidiary of Chevron Corporation, USA 

ConocoPhillips 

Gasheka Sreet 6 

Office 1300 

Moscow 

125047 

Russia 

Tel: +7 (495) 785 2800 

Fax: +7 (495) 785 2804 

Website: www.conocophillips.com 

Key presonnel 

President: Mr Don Wallette 

Business Development Manager: Ms Mariana Barabanova 

Sales Manager: Mr Anton Mirov 




ConocoPhillips (Russia) carries out upstream operations and business development. 

In December 1991, ConocoPhillips and Arkhangelskgeoldobycha (AGD) signed a joint 

venture agreement, which established the Polar Lights Company. The joint venture 

has also been studying a number of oil fields north of the Timan Pechora Province. 

ConocoPhillips is also a participant in the Shtokman Gas Condensate field in partnership 

with Gazprom, Rosshelf, Fortum (formerly Neste), Norsk Hydro (Norway) and Total 

(France). 


Chemicals 


Oil & Gas 

Exploration 

Manufacture 

Oil/Petroleum 


Recycling/Treatment 


USA 

United Kingdom 

Subsidiary of ConocoPhillips, USA 

Eni SpA 

Levshinskij B per., Building 1 

Moscow 

119034 

Russia 

Tel: +7 (495) 916 5353 

Fax: +7 (495) 916 5351 

Website: www.eni.it 

Key presonnel 

Head of Representative Office: Mr Ernesto Ferlenghi 




Eni SpA (Russia) specialises in the exploration and production of natural gas. In 1998, 

Eni and Gazprom signed a 50/50 strategic alliance agreement for the exploration, 

development, transportation and sale of hydrocarbons, with a special focus on natural 

gas. In February 1999, Gazprom and Eni signed an agreement for the joint participation 

in the Blue Stream Project, a 400 kilometre gas pipeline from the Russian to Turkish 

coasts on the Black Sea and a compressor station in Dzubga, Russia. The pipeline has a 

capacity of approximately 16 billion cubic metres of gas per year. 


Oil & Gas 


Italy 

Representative Office for Eni SpA, Italy 

Halliburton International 

Smolnaya ul, d. 24d 

Meridian Commercial Centre, 18/F 

Moscow 

125445 

Russia 

Tel: +7 (495) 755 8300 

Fax: +7 (495) 755 8301 

Website: www.halliburton.com 

Key presonnel 

Executive Director: Mr Konstantin Schilin 

Finance Director: Mr Craig Miller 

Office Manager: Mrs Ludmila Mokrousova General Management 

Marketing Manager: Mrs Anna Dubovskaya 

Human Resources Manager: Mrs Varvara Nesterova 

Head of Information Technology: Mr Vladimir Ivakh 

Business Development - Account Leader: Mrs Victoria Duneva Marketing 





Halliburton (Russia) provides services to the oil and gas industries. Its sister company, 

Halliburton KBR, is an international technology-based engineering and construction firm. 

Halliburton International has offices in Moscow, Nizhnevartovsk, Noyabrsk, Nefteyugansk, 

Usinks, Kharyaga and Yuzhno-Sakhalinsk. 


Services 

Oil & Gas 

Trade 


USA 

Subsidiary of Halliburton Group of Companies, USA 

Hydro Aluminium CIS AS 

PO Box 161 

© Business Monitor International Ltd 

Page 85


Usachova Street 33 - 7 

Moscow 

119048 

Russia 

Tel: +7 (495) 244 4406 

Fax: +7 (495) 244 3251 

Website: www.hydro.com 




Hydro Aluminium CIS AS (Russia) specialises in aluminium, fertilisers, oil and gas. The 

company manufactures primary aluminium and rolled products. 


Chemicals 


Manufacturing 

Oil & Gas 

Agrochemicals 


Norway 

Subsidiary of Hydro Aluminium AS, Norway 

Iks-Oil Ltd 

Strojenie 14, Korpus 1, Office 7 

Nabierezhnaya Dom 7 

Dierbienievskaya 

Moscow 

115114 

Russia 

Tel: +7 (495) 234 5942 

Fax: +7 (495) 234 5944 

Email: info@x-oil.ru 

Website: www.iksoil.ru 

Key presonnel 

Managing Director: Mr Alexander Zasypkin 

Sales Manager: Mr Alexander Kolesnikov 




Oil & Gas 


Russia 


Distributor for BP plc, United Kingdom 

Intari 

Beringa ul, d. 38 

St Petersburg 

199397 

Russia 

Tel: +7 (812) 352 0743 

Fax: +7 (812) 325 3757 

Email: sar@intari.com 

Website: www.intari.com 




Intari (Russia) develops ice and marine technology. Products include integrated 

geographical systems Canadian company Enfotec for the exploration of the Arctic ocean, 

in preparation for the extraction of oil and gas. 



Oil & Gas 


Russia 

Canada 

Integra Group 

6 Prospect Vernadskogo 

Moscow 

119311 

Russia 

Tel: +7 (495) 933 0621 

Fax: +7 (495) 933 0622 

Email: integra.info@integra.ru 

Website: www.integragroup.ru 

Key presonnel 

General Director: Mr Igor Voronov 





Integra Group is a leading Russian independent provider of onshore oilfield services and 

a leading manufacturer in Russian of drilling rigs with heavy lifting capacity, cementing 

equipment and specialised equipment used in the exploration, development and 

production of oil and gas. Integra Group operates in the drilling, workover, seismic and 

geophysics sectors and manufactures oilfield services equipment. It has oilfield services 

operations in all major oil and gas producing regions in Russia and in many other CIS 

countries. Through 16 strategic acquisitions, Integra Group has become one of the leading 

companies in the oilfield services and equipment manufacturing sectors of the Russian 

market. 


Oil & Gas 

Manufacturing 



Russia 

Interros 

9 Bolshaya Yakimanka Street 

Moscow 

119180 

Russia 

Tel: +7 (495) 785 6363 

Fax: +7 (495) 726 5754 

Email: info@interros.ru 

Website: www.interros.ru 

Key presonnel 

President: Mr Valadimir Potanin 

CEO: Mr Sergey Barbashev 

Deputy CEO: Mr Guerman Aliev 

CFO: Mr Alexander Polevoy 

Managing Director: Mr Andrei Bougrov 

Managing Director - Investments: Mr Dmitry Kostoyev 





Interros (Russia) is among the country’s largest private investment companies. 

Investments include nickel and gold producer MMC Norilsk Nickel, power machine 

producer Silovye Mashiny, private banking group Rosbank, agriculture and food 

processing venture APK Agros, the Interros-Dostoinstvo private pension fund, the 

Soglasie insurance group, media group Prof-Media News and Publishing Holding, and a 

27.5% stake in oil and gas exploration group RUSIA Petroleum. 


Oil & Gas 

Mining 



Insurance 

Media 


Russia 

Inuctan Oy 

4th Rostovskiy per., d. 1, Street 2 

Helsinki House 

Moscow 

119121 

Russia 

Tel: +7 (495) 937 3563 

Fax: +7 (495) 248 1471 

Email: inuctan@space.ru 

Website: 

Key presonnel 

Chief Representative: Mr Nikita Nikonov 




Inuctan Oy (Russia) is a subsidiary of Autotank (Finland). The firm provides oil companies 

and their service stations with fuel sales solutions. 


Oil & Gas 

Trade/Supply/Distribution 


Finland 

ITERA Group 

Sevastopolsky Prospekt, 28, Building 1 

Building 1 

Moscow 

117209 

Russia 

Tel: +7 (495) 411 8500 

Fax: +7 (495) 411 8502 

Email: inbox@itera.ru 

Website: www.iteragroup.com 

Key presonnel 

Vice Chairman: Mr Valery Otchertsov 

President: Mr Igor Viktorovich Makarov General Management 

Vice President - Commercial: Mr Gennady Nikolaevich Skidanov 

Executive Vice President: Mrs Raissa Mikhailovna Frenkel 

General Director: Mr Vladimir Makeyev 





ITERA Group (Russia) produces, transports and markets natural gas, which accounts 

for 80% of the group’s sales. The ITERA group of companies comprises 130 companies 

engaged in the energy, metal, construction, chemicals and other sectors in Russia, the 

CIS, Baltic States, the USA, Netherlands and Switzerland. The company is also the 

largest independent gas producer in Russia, operating a number of gas fields in the 

Yamalo-Nenetz Autonomous Region. 


Page 86



Chemicals 


Oil & Gas 

Construction/Engineering 

Mining 


Russia 

LUKOIL Company 

11 Sretensky Boulevard 

Moscow 

101000 

Russia 

Tel: +7 (495) 627 4444 

Fax: +7 (612) 5535 8578 

Email: webmaster@lukoil.com 

Website: www.lukoil.com 

Key presonnel 

President: Mr Vagit Alekperov General Management 

First Vice President - Finance, Economics & Planning: Mr Sergei Kukura Finance 

First Vice President - Exploration & Production: Mr Ravil Maganov General Management 

Head of Main Division - Human Resources: Mr Anatoly Moskalenko 

First Vice President - Refining, Marketing & Distribution: Mr Vladimir Nekrasov 

Vice-President, Head of the Main Division of General Affairs: Mr Anatoly Barkov 

Vice-President, Head of the Main Division of Supplies and Sa: Mr Valery Subbotin 

VP, Head of Strategic Development & Investment Analysis: Mr Leonid Fedun 

Vice-President, Head of the Main Technical Division: Mr Dzhevan Cheloyants 

Vice-President, Head of the Main Division of Oil and Gas Pro: Mr Vladimir Mulyak 





LUKOIL Oil Company (Russia) holds over 19.3 bn barrels of oil equivalent in proven 

reserves, the third largest private oil company in the world in terms of reserves. The bulk 

of the company’s exploration and production assets are located in Western Siberia, with 

smaller reserves in European Russia, Timan Pechora and the North Caspian regions. 

Internationally the company has refining assets in the Ukraine, Romania, and Bulgaria, 

and retail networks in the US, Poland, Bulgaria, Romania, Turkey, Lithuania, Latvia, 

Estonia, Ukraine, Belarus, Moldova, Azerbaijan, Kazakhstan and Kyrgyzstan. 


Manufacturing 

Oil & Gas 

Natural Gas 

Oil/Petroleum 

Distribution/Transport/Transmission 


Refining/Processing 

Suppliers 


Russia 

Mitsubishi Corporation 

Avrora Business park 

4/F, 7 Building 2 

Sagovnichskaya 

Moscow 

115035 

Russia 

Tel: +7 (495) 961 2122 

Fax: +7 (495) 961 2127 

Website: www.mitsubishicorp.com 

Key presonnel 

Finance Director: Mr Akira Oida 

Administration Director: Mr Nishigori Taku 

General Manager: Mr Nakavato Makoto 

Head of Chemicals: Mr Tsukui Manabu 

Head of Information Technology: Mr Vladimir Aimetinov 

Human Resources Manager: Mrs Ekaterina Mihesilova 




Mitsubishi Corporation (Russia) provides services to the energy sector. The company 

recently carried out a feasibility study on the reduction of carbon-dioxide emissions at the 

Konakovo Power Station, located in a Moscow suburb. This was in co-operation with The 

Kansai Electric Power Inc (Japan). The company is also developing sources of liquefied 

natural gas in Russia. Mitsubishi has offices in Moscow and Yuzhno-Sakhalinsk. 



Services 

Oil & Gas 

Chemicals 



Japan 

Subsidiary of Mitsubishi Corporation, Japan 

MOL-Russ 

Bulding 3, 9/F 

Kosmodamianskaya Naberezhnaya, 52 

Moscow 

115054 

Russia 

Tel: +7 (495) 967 6805 

Fax: +7 (495) 967 6806 

Email: info@rus.mol.hu 

Website: www.mol.hu 

Key presonnel 

General Manager: Mr Gabor Gyulai 

Office Manager: Ms Maria Tatarnikova 

Finance Manager: Ms Laura Babaeva 

Head of Human Resources: Miss Anna Belyaeva 

Head of Information Technology: Mr Eugene Prokoshev 




Oil & Gas 


Hungary 

Subsidiary of MOL Magyar Olaj- és Gázipari Nyrt, Hungary 

PetroAlliance Services Company Limited 

Narodnogo Opolcheniya ul d 40/3 

Moscow 

123298 

Russia 

Tel: +7 (495) 797 9393 

Fax: +7 (495) 797 9397 

Email: pas@petroal.ru 

Website: www.petroal.ru 

Key presonnel 

Finance Director: Miss Marina Solovyeva 

Human Resources Manager: Mrs Anna Ermilova 

Chief Accountant: Mrs Irina Dorina 

Head of Information Technology: Mr Arkady Kochurov 




PetroAlliance Services Company Limited (Russia) provides seismic, wireline logging and 

perforating, directional drilling, pumping, integrated project management, and information 

management and IT-related services to both Russian and international oil and gas 

operators. 


Oil & Gas 



Russia 

Affiliated with Schlumberger Ltd, USA 

Russian Petroleum Investor (RPI) 

Entrance 3, Office 1403-A 

12 Krasnopresnenskaya Naberezhnaya 

Moscow 

123610 

Russia 

Tel: +7 (495) 778 4597 

Fax: +7 (495) 778 9332 

Email: moscow@rpi-inc.com 

Website: www.rpi-inc.com 




Oil & Gas 

Services 


USA 

Shell East Europe Company Ltd 

ul Smolnaya, 24 

12/F, Meridian Business Center 

Moscow 

125445 

Russia 

Tel: +7 (495) 258 6900 

Fax: +7 (501) 258 6920 

Website: www.shell.com 

Key presonnel 

General Manager: Mr Yacek Dziembaj 




Shell East Europe Company Ltd (Russia) sells oil products and chemicals. 


Oil & Gas 

Chemicals 

LPG 

Lubes 



Netherlands 


Subsidiary of Royal Dutch Shell plc, Netherlands 


Page 87


Shell Exploration & Production Services (RF) BV 

Novinsky Boulevard 31 

Moscow 

123242 

Russia 

Tel: +7 (495) 792 3550 

Fax: +7 (495) 792 3553 

Email: customersupport@shell.com 

Website: www.shell.com 

Key presonnel 

General Director: Mr Christopher Finlayson General Management 

Public Affairs Manager: Mr Maxim Shoob General Management 




Shell Exploration & Production Services (RF) BV (Russia) explores and produces 

hydrocarbon resources and associated infrastructure and pipeline projects. Shell Global 

Solutions is also based at the above Moscow office and provides a consultancy service to 

corporate clients. 


Oil & Gas 

Exploration 

Manufacture 


Recycling/Treatment 


Services 


Netherlands 


Subsidiary of Royal Dutch Shell plc, Netherlands 

Sibir Energy plc 

31 Novinsky Boulevard, 6/F 

Moscow 

123242 

Russia 

Tel: +7 (495) 790 7840 

Fax: +7 (495) 790 7831 

Email: information@sibirenergy.com 

Website: www.sibirenergy.com 




Sibir Energy plc (Russia) is an independent oil and gas production company with a pure 

Russian focus as 100% of its reserves and crude oil production comes from the oil-rich 

Khanty Mansiysk Region in Western Siberia. 


Oil & Gas 



Subsidiary of Sibir Energy plc, United Kingdom 

Statoil Russia 

2, Block 2, Paveletskaya Square 

Moscow 

115054 

Russia 

Tel: +7 (495) 967 3818 

Fax: +7 (495) 967 3824 

Website: www.statoilhydro.com 

Key presonnel 

Governmental Affiairs Director: Mr Alexander Levshov Senior Management 

Business Development Manager: Mr Evgeny Borisov 

Finance Manager: Mr Michal Kolodziejczyk 

Asset Manager: Mr Per Kjaernes 

Head of Industrial Relations: Mr Benedikt Henriksen 

Head of Operations: Mr Bjorn Ingar Tollefsen 

Exploration Manager: Mr John K Milne 

Public Affairs Manager: Mrs Natalia Krasilnikova 

Human Resources Director: Mr Aslak Sviland 





Statoil (Russia) specialises in oil and gas exploration and production, but also has 

interests in related products, such as motor fuels and lubricants. The company has five 

service stations in the Murmansk region, which are owned and operated by Statoil Nefto. 

In the longer term, the company hopes to have ten service stations on the Kola peninsula 

in north-western Russia. Subsidiary of Statoil ASA (Norway). 


Oil & Gas 

Transport 

Natural Gas 

Oil/Petroleum 




Norway 

Subsidiary of Statoil-Den Norske Stats Oljeselskap AS, Norway 

Surgutneftegas 

Kukuevitskogo ul, d. 1 

Surgut 

Tyumen 

628400 

Russia 

Tel: +7 (346) 242 6133 

Fax: +7 (346) 242 6494 

Email: secret_b@surgutneftegas.ru 

Website: www.surgutneftegas.ru 




Surgutneftegas (Russia) is the country’s third largest upstream oil producer, producing 

approximately 13% of the country’s total output. 


Oil & Gas 


Russia 

Tatneft JSC 

75, Lenin Street 

Almetyevsk 

Tatarstan 

423450 

Russia 

Tel: +7 (855) 337 1111 

Fax: +7 (8553) 376 151 

Email: tnr@tatneft.ru 

Website: www.tatneft.ru 

Key presonnel 

CEO: Mr Shafagat Fakhrazovich Takhautdinov 

Deputy General Director: Mr Vladimir Pavlovich Lavushchenko General Management 

Deputy General Director & Chief Geologist: Mr Rais Salikhovich Khisamov General 

Management 

First Deputy General Director & Head of Crude & Oil Products: Mr Nail Ulfatovich 

Maganov 

First Deputy General Director - Production: Mr Nail Gabdulbarievich Ibraghimov 

Finance Director: Mr Evgeny Tikhturov 





Tatneft JSC (Russia) is active in the upstream and downstream sectors of the oil and gas 

industry. The company has 5.5bn barrels of proved oil reserves, located in the Republic of 

Tatarstan and produces around 8% of Russia’s total crude output. 


Oil & Gas 

Oil/Petroleum 



Russia 

Technological Solution 

Naberezhnaya Obvodnogo Canala 14 

Sankt-Peterburg 

St Petersburg 

192019 

Russia 

Tel: +7 (812) 365 4406 

Fax: +7 (812) 365 4407 

Email: infost@quantum.ru 

Website: www.technosol.ru 




Oil & Gas 


Russia 


Distributor for BP plc, United Kingdom 

TNK-BP 

1 Arbat Street 

Moscow 

119019 

Russia 

Tel: +7 (495) 777 7707 

Fax: +7 (495) 777 7708 

Email: company@tnk-bp.com 

Website: www.tnk-bp.com 

Key presonnel 

Vice President - Strategy & New Business Development: Mr Stanislav Miroshnik General 

Management 

Vice President - Technology: Mr Francis Sommer 

Acting Managing Director: Mr Mihail Fridman 

Executive Director: Mr Herman Han 

Executive Director: Mr Victor Vekselberg 

Operations Director: Mr Bill Schreider 

Finance Director: Mr Jonathan Miuir 

Business Assurance Director: Mr Anatoly Temkin 


Page 88






TNK-BP (Russia) was formed by UK-based oil major BP and the Russian financial 

companies Alfa Group and Access-Renova (AAR), the owners of TNK, after they agreed 

to a US$6.35bn merger of their Russian businesses. The new 50:50 joint venture, TNK-BP 

is the country’s third and the world’s tenth largest private sector producer of oil and gas. 


Oil & Gas 


Russia 

USA 

Joint venture with Alfa Group, Russia 

Joint venture with BP plc, United Kingdom 

Total Moscow 

21, 1st Tverskaya Yamskaya Street 

Moscow 

125047 

Russia 

Tel: +7 (495) 228 6200 

Fax: +7 (495) 228 6201 

Website: www.total.com 

Key presonnel 

General Director: Mr Pierre Nerguararian 




Total Moscow (Russia) is involved in the exploration and production of oil and chemical 

products. The group companies Elf Lubricants Russia and Bostik Findley Russia are also 

represented in Russia. Total operates the Kharyaga project in Russia’s northern Timan- 

Pechora province, which is the country’s first onshore production-sharing project. The 

Kharyaga project is being developed jointly by Total (50%), Norway’s Norsk Hydro (40%) 

and the local Nenetsk Oil Co (10%). 



Oil & Gas 

Chemicals 


France 

Subsidiary of Total SA, France 

UGS 

World Trade Center 

Krasnopresnenskaja Naberezhnaya 12 

Office 507 

Moscow 

123610 

Russia 

Tel: +7 (495) 967 0774 

Fax: +7 (495) 967 0775 

Website: www.ugs.com 




The mainline gas pipes forming Russia’s Unified Gas Transportation System (UGS) are 

owned by Gazprom. USG, the largest gas transportation system in the world, is over 

153,300 km long, has 263 compressor stations along the way and gas-compressor 

units with 44.2 million kW aggregate power. Gazprom controls over 200 regional 

gas distributors serving over 430,000 km of transportation pipes (or 80% of the total) 

nationwide, supplying natural gas to 80,000 cities and rural communities across Russia. 


Oil & Gas 


Russia 

Wintershall Holding AG 

ul Namjotkina 16, Hotel-Complex 

Office 706 

Moscow 

117997 

Russia 

Tel: +7 (495) 719 8689 

Fax: +7 (495) 719 8689 

Email: info@wintershall.com 

Website: www.wintershall.de 

Key presonnel 

President: Mr Reinier Zele 

Head of Representative Office: Mr Jurgen Moepert 

HR Manager: Mrs Oksana Golovchenko 




Wintershall Holding AG (Russia) is involved in oil and gas exploration and production. 


Oil & Gas 

Natural Gas 

Oil/Petroleum 


Trade 


Germany 

Representative Office for Wintershall AG, Germany 

Zarubezhneft Joint Stock Company 

Building 1, 9/1/1 Armiansky Pereulok 

Moscow 

101990 

Russia 

Tel: +7 (495) 748 6500 

Fax: +7 (495) 748 6505 

Email: nestro@nestro.ru 

Website: www.nestro.ru 

Key presonnel 

Chairman: Mr Sergey Shmatko 

General Director: Mr Nikolay Brunich 

Marketing Manager: Mr Alexey Hodakov 





Zarubezhneft (Russia) is the leading foreign economic enterprise in the oil and gas 

industry in the country. The priority fields of activities lie in the development and 

implementation of complex oil and gas programmes and projects abroad, covering all 

stages from exploration to facilitation of oil fields on land and offshore. 


Oil & Gas 


Russia 


Page 89

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