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Russia Oil and Gas Competitive Intelligence Report 2010 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. © Business Monitor International Ltd Page 43
Russia Oil and Gas Competitive Intelligence Report 2010 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. © Business Monitor International Ltd Page 44
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