Rosneft Expands Natural Gas Output with Acquisition of $1.8 Billion Stake in Arctic Russia

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russia's state-controlled company OAO Rosneft (OP:OJSCY) (Moscow, Russia) will acquire a 40% stake in Arctic Russia B.V. from Italian utility Enel SpA (MI:ENEL) (Milan, Italy). Through this transaction, Rosneft will attain indirect ownership of a 19.6% stake in SeverEnergia. The acquisition will help Rosneft reach its goal of 100 billion cubic meters (bcm) of natural gas output by 2020.

Rosneft will use its subsidiary, Itera, to consolidate the gas assets within the Rosneft Group. According to a company statement, the transaction is valued at $1.8 billion.

The other 60% of Arctic Russia is owned by Italian energy firm ENI SpA (NYSE:E) (Rome, Italy).

"The gas business is one of the company's strategic development priorities," said Igor Sechin, CEO of Rosneft, in a statement. "Acquisition of a stake in SeverEnergia will create a multiplying effect for further growth. It will help generate additional synergies from the joint asset development within the Yamal Gas Cluster through optimization of [capital expenditures] and sales channels."

Enel and Eni bought the company during the liquidation of bankrupt Yukos Oil in 2007; they were the only international energy firms to buy assets in the auctions. Russia's state-owned natural gas exporter OAO Gazprom (OTC:OGZPY) (Moscow) later bought a 51% share, that it sold to OAO Novatek (LSE:NVTK) (Tarko-Sale, Russia) and its liquids arm, OAO Gazprom Neft (OP:GZPFY) (Moscow).

Arcticgas, a subsidiary of SeverEnergia, holds the exploration and production license for the Samburg licensing area (which includes the Samburg, North-Yesetin, East-Urengoy and NorthPurov fields, as well as a part of the Urengoy field), and the Yaro-Yakhin, North-Chasel and Yevo-Yakhin fields.

SeverEnergia's reserves were estimated at 421 bcm of natural gas and 70 million metric tons (mmt) of liquid hydrocarbons, inclusive of Rosneft's share of 82.5 bcm of natural gas and 13.7 million tons of liquids. The largest non-producing fields in terms of reserves are the Urengoy, Yaro-Yakhin and North-Chaselsk fields.

Novatek estimates the annual gas and gas condensate production potential of the four blocks at 35 bcm and 6.5 mmt, respectively, which is similar to light crude oil. Production at the Samburg field started in April 2012, and its current annual production capacity is 4.6 bcm of gas and more than 600,000 tonnes of gas condensate. The production launch at the Urengoy and Yaro-Yakhin fields is planned for 2014. Currently, the consortium sells all of the gas to Gazprom, while all of the gas condensate is acquired by Novatek for further processing at the Purovsky plant.

In late July, Rosneft reported a second-quarter profit of $943 million after a loss of $30.1 million the previous year. After buying BP plc's (NYSE:BP) (London, England) Russian oil venture TNK-BP, Rosneft's oil and gas output increased by 4.79 million barrels per day. Crude output accounted for 4.185 million barrels per day.

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