the RUSSIA oil & gas competitive intelligence report - Report Buyer

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Russia Oil and Gas Competitive Intelligence Report 2010 Total Company Analysis 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) Operating Statistics 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: Sustainability of Russian oil growth Changes in national energy policy Uncertainties over financing and future operations of Shtokman Market Position 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. © Business Monitor International Ltd Page 47
Russia Oil and Gas Competitive Intelligence Report 2010 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. Latest Developments 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. © Business Monitor International Ltd Page 48
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