Russia Begins Deepwater Drilling in Vietnam

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Photo from Rosneft press release

Rosneft has started exploration drilling off the south coast of Vietnam, the company’s press service announced today.

The release highlights that it is the company’s first time drilling an international well as a sole operator. The Russian company, which has previously only operated deepwater offshore drilling inside of Russia, is hoping the project will give the company experience to tackle complicated domestic shelf projects that rely on American technology. Cooperation with Russian companies in offshore, Arctic, and shale drilling are banned by Western sanctions.

“I am sure that the experience gained in Vietnam will be used by the company not only in its activity in the southern seas; these acquired skills will find application in planning and implementation of upstream projects in remote areas,” Rosneft CEO Igor Sechin said in the statement.

The expected recoverable reserves of natural gas are estimated at 12.6 billion cubic meters (bcm) with 0.6 million tons of gas condensate, according to the statement. At 162 meters sea depth and design depth of about 1380, the “deepwater” well wouldn’t be allowed inside of Russia under the current sanction regime.

The well is located in the Nam Con Son Basin, 370 kilometers off the southern Vietnamese coast and will be serviced by the USAt 162 meters sea depth and design depth of about 1380, the well located at Block 06.1, will be managed by US oilfield services provider Schlumberger.

At 162 meters sea depth and design depth of about 1380 meters, the well located at Block 06.1 will be managed by US oilfield services provider Schlumberger.

Rosneft – the world’s biggest producer at 5.1 million barrels of oil equivalent per day – gained access to Vietnam’s offshore blocks when the Russian company acquired TNK-BP in March 2013. Rosneft already jointly produces gas from two offshore blocks, also in the Nam Con Son Basin. Rosneft works in cooperation with state-owned PetroVietnam and India’s ONGC in Block 06.1 and is the project operator in Block 05.3/11.

The gas fields in Block 06.1 Lai Tay and Lan Do, had an initial estimated 68 trillion cubic meters in gas reserves and condensate deposits. Drilling is carried out along with Japan Drilling Company (JDC).

Rosneft is the biggest gas producer in Vietnam, and in 2015, the gas produced in Block 06.1 satisfied 12% of Vietnam’s energy demand, and since it started pumping gas in June 2015, has produced a total of 46 billion cubic meters.

The foray into Vietnam should surprise no one, as Russia has long been building energy ties in Vietnam. As a token of partnership, Rosneft rival Gazprom Neft offered Petrovietnam partnership in an Arctic project. Beyond hydrocarbons, Vietnam has commissioned Russia to build the country’s first nuclear power plant.

Gas fields in Western Siberia – which helped make the Soviet Union and later Russia an energy power – are fast depleting, and projects in Vietnam and elsewhere are seen as cushions to keep both Rosneft and Russia’s oil output stable.

Louise Dickson

Russia’s Highest-Paid CEO is Gazprom’s Alexey Miller at $27 million

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Photo of Alexey Miller from bloknot.ru

Alexey Miller, chief executive of Russia’s largest gas producer Gazprom, topped Forbes Russia’s top-paid managers list for the first time ever, hauling in an estimated $27 million in 2014.

Miller, who has been at the top post at Gazprom since 2001, was one of the few top-paid Russian executives to see his salary increase in dollar terms this past year, given the ruble’s massive devaluation.

Forbes published its annual ranking of Russia’s best-compensated CEOs on Thursday. The estimates are calculated using the companies’ compensation disclosures, in addition to analysis by Forbes journalists.

In second place was Andrey Kostin, CEO of Russia’s second-largest lender VTB, who saw his salary drop to $21 million from $37 million in 2013. In third place is another energy tsar, Igor Sechin, head of Rosneft, who made $17.5 million in 2014. This is the first time Sechin’s salary was published by Forbes Russia’s since the magazine was sued after reporting his salary was $50 million in 2013. After that, the Russian government ordered top executives from state-owned companies to make their salaries public.

Miller and Sechin’s pay are on par with companies that are far outperforming either Russian energy giant. ExxonMobil boss Rex Tillerson’s salary was estimated at $33 million in 2014 and Bob Dudley was compensated $12.74 million by BP.

Both Miller and Sechin are considered longtime confidants of Russian President Vladimir Putin, and have both worked with him since the 1990s, dating back to the president’s time in the St. Petersburg mayor’s office.

The more than $10 million gap between Miller and Sechin’s salaries would make sense if Gazprom were performing much better than Rosneft this year, which is not the case. Net income fell steeply and net debt increase by almost 50 percent.

Like Rosneft, Gazprom is suffering from low oil prices, but due to decreased demand from Europe, Gazprom is massively under producing. It is estimated in 2015 Gazprom will only produce 450 billion cubic meters of its 617 billion cubic meter capacity.

Back in 2008, when the company was valued at $360 million, Gazprom head Alexey Miller forecasted that within a decade the oil conglomerate would become the world’s largest company with a market capitalization of $1 trillion.

Now its market capitalization hovers around $51.5 billion. In the last year, stocks have lost more than 35 percent of their trading value.

However, it’s not all doom and gloom for Gazprom, as projects such as Nord Stream II, a pipeline from Russia to Germany, and two potential pipelines to China could strengthen the company’s position.

Louise Dickson

The Impending Breakup of Gazprom, Russia’s Gas Giant

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In October, Russian President Putin will have to make a decision on breaking up Gazprom, the country’s largest exporter of natural gas, RBC reported. The company will likely have to give other companies, such as Novatek, Lukoil, Rosneft, and Surgutneftegas access to their pipelines and gas storage facilities.

Russia’s Federal Antimonopoly Service (FAS) has long been working to break up Russia’s “national treasure”, and believes that liberalizing the export market will bring about more fair and competitive gas transport prices and tariffs.

The verdict on whether or not to divy up Russia’s national breadwinner is split. The company, which accounts for 8 percent of Russia’s economy, is seen as a source of pride for many Russians. In 2012, when Russians were asked where they would work if they could choose any large company, 44 percent said Gazprom.

If the company is split, Rosneft is clearly a winner, as it will be able to sink its teeth into the $400 billion gas deal Gazprom sealed with China in May 2015.

The FAS will soon submit a formal request to break up Gazprom to Russian Vladimir Putin’s presidential commission on fuel and energy sector, RBC reported citing FAS deputy head Anatoly Golomolzin.

According to Golomolzin, discussions are being initiated by Rosneft. If action is taken, Gazprom will also lose its monopoly on gas exports to China, and Rosneft will be allowed to send its oil to China via Gazprom’s pipelines.

Vladimir Blinkov, the lead researcher at the Russian Institute for Strategic Studies, has accused the FAS of ‘anti-Gazpromization’, alleging that the regulator has a conflict of interest in helping Gazprom’s competitors.

The split shouldn’t be a shock to anyone, Gazprom has been under attack since the 1990s. In 2007 then-First Deputy Prime Minister Dmitry Medvedev gave the FMS orders to look at Gazprom. In 2013, Russian President Putin signed into law amendments to the gas export law aimed to break Gazprom’s monopoly on foreign export, particularly LNG.

Even though Gazprom achieved revenues of 4.48 trillion rubles in 2014, is a relic of the Soviet Union and isn’t keeping up with its competitors in profit. While in 2014 Gazprom’s profits reached 157 billion rubles, Surgneftgaz posted 885 billion rubles in profits. Rosneft outpaced Gazprom in profits by hundreds of millions, and Lukoil, the country’s second-largest oil company, topped it by about 24 billion rubles.

Novatek and Rosneft will aggressively take advantage of the liberalized export market and begin the export of liquefied natural gas (LNG), especially to growing Asian markets.

The behemoth has failed to innovate, especially in LNG technology, since a majority of the company’s revenues (50%) are made in pipeline transport of natural gas to Europe, a very lucrative market.

Competitors Novatek and Rosneft are eager to get into the LNG market, and already have plans for LNG facilities. Currently, Russia only has one LNG plant in operation, the Sakhalin-2 project in the Far East, a joint project between Gazprom (50%), Royal Dutch Shell (27.5%), Japan Mitsui (12.5%), and Mitsubishi subsidiary Diamond Gas (10%). Despite falling demand from Asia, the terminal plans to produce 10.8 million tonnes in 2016.

Rosneft plans to launch its own LNG plant on Sakhalin with a 5 million tons per year capacity in 2020. ExxonMobil is a partner.

Novatek’s Yamal LNG project in the Arctic, once finished, will have a 16.5 million tonnes per year capacity. Novatek has partners with France’s Total and China’s CNPC.