x Abu Dhabi, UAEFriday 19 January 2018

Total signs $4bn Russian gas deal

Total in $4bn deal for 12 per cent of Novatek, the second biggest Russian gas producer.

Novatek, which supplies 10 per cent of Russia's domestic market, is the country's second-biggest gas producer after the government-controlled Gazprom. AFP
Novatek, which supplies 10 per cent of Russia's domestic market, is the country's second-biggest gas producer after the government-controlled Gazprom. AFP

The French oil group Total plans to acquire almost a fifth of Russia's biggest independent gas producer and will join a large project to export liquefied natural gas (LNG) from western Siberia.

At a meeting in Moscow on Monday, a US$4 billion (Dh14.68bn) agreement was signed for Total to take a 12.08 per cent stake in Novatek with options to increase the holding to 15 per cent within 12 months and 19.4 per cent within three years. The meeting was attended by Vladimir Putin, the Russian prime minister, Christophe de Margerie, the chief executive of Total, and Leonid Mikhelson, the chairman of Novatek.

The French company will also become the biggest foreign investor in Novatek's Yamal LNG project, with a 20 per cent interest. The project includes the development of the South Tambey gas and condensate field in western Siberia's Yamal Peninsula, which holds an estimated 44 trillion cubic feet of gas resources from which the partners plan to produce 15 million tonnes per year of LNG. The Yamal deal is expected to close by July.

"Total is delighted with this strategic alliance with Novatek, which will accelerate the group's development in Russia," Mr de Margerie said. "In becoming the first international investor to participate in the development of the giant gas resources of the Yamal Peninsula, Total pursues its strategy aimed at establishing partnerships in producing countries with national players and confirms its leading position in the liquefied natural gas business."

Russian authorities last year declared the Yamal LNG project to be of national interest. It would allow Russia to compete with African and Qatari LNG supplies that have been displacing Russian pipeline gas in western Europe. The development would be Russia's second LNG project after Sakhalin Island in the far east of Siberia.

By cementing its "strategic partnership" with Novatek with an equity deal, Total follows the precedent recently set by BP. In January, the British oil group agreed to a $16bn share swap with Rosneft, the biggest Russian oil producer, with which it also agreed to form an alliance to develop oil deposits in the Russian Arctic.

Novatek is Russia's second-biggest gas producer after the government-controlled Gazprom. It supplies 10 per cent of Russia's domestic gas market and last year produced 750,000 barrels of oil equivalent per day (boepd) of gas and condensate, a type of light oil sometimes found in gasfields. The company's assets include several giant gasfields in northern Russia.

Total's alliance with Novatek is unlikely to raise eyebrows at Gazprom, with which the French group has collaborated since 2007 on long-delayed plans to develop the giant Shtokman gas and condensate field in the Barents Sea. Gazprom owns 10 per cent of Novatek and is a partner in Yamal LNG.

Total plans to acquire its initial stake in Novatek from the Russian company's two main shareholders - Volga Resources, a Luxembourg-based fund controlled by the oil trader Gennady Timchenko, and Gazprom. Those transactions are expected to close next month.

"Through this acquisition, the group will have access to an equity production of 120,000 boepd and to proved and probable reserves of about 1 billion boe," Total said.