Thursday, March 3, 2011

Total spends $4 billion for a stake in Russia’s Novatek and enters Yamal LNG. Russian reserves are powering up the economy!!

Total and Novatek signed two Memorandums of Cooperation under which:
  • Total will become the main international partner on the Yamal LNG project holding a 20% share. Novatek will hold a 51% interest in the project.
  • Total will take a 12.08% shareholding in Novatek with the intent of both parties to increase the share to 15% within 12 months and to 19.40% within 36 months.

Yamal project overview:
The Yamal LNG project includes the construction of production, storage and loading facilities for LNG based on the resources of the South-Tambeyskoye field. The South-Tambeyskoye field discovered in 1974 is located in the arctic area of the Yamal peninsula.

As of 31 December 2010, the South-Tambeyskoye field’s proved reserves under SEC standards totaled 418 billion cubic meters of natural gas and 15 million tons of gas condensate while the field’s proved plus probable reserves appraised in accordance with PRMS methodologies totaled 802 billion cubic meters of natural gas and 31 million tons of gas condensate. The project calls for the construction of a 15 million ton per annum LNG plant and production capacity for up to one million tons of gas condensate per annum. The project requires investment of $20 billion and launch of the first train of the LNG plant is scheduled for 2016.

Novatek’s chief financial officer Mark Gyetvay said, the company has just completed pre-FEED study on the project and is studying the results to launch the final FEED. Novatek's CEO Leonid Mikhelson earlier said the final front-end engineering design was to be completed in late 2012 or early 2013.

Novatek overview:
Novatek is the largest independent gas producer in Russia and supplies approximately 10% of the domestic market. Its 2010 production reached 37.8 billion cubic meters of gas per year (750,000 BOE/d including condensates). Novatek’s portfolio of resources is made of several giant fields that underlie Novatek’s strong potential for growth. Since 2009, Total and Novatek are jointly developing the Termokarstovoye field.

The 12% stake will be acquired by Total from Novatek’s two main shareholders based on stock market quotations. The transaction is expected to be closed by April 2011 and amounts to approximately 4 billion dollars. Through this acquisition, Total will have access to an equity production of 120,000 BOE/d and to proved and probable reserves of about 1 BBOE.

Russian reserves are powering up the economy!!

Russia is appealing for investors today and this is particularly obvious on the back of events that are going on in the world," Total Chief Executive Officer Christophe de Margerie said, referring to turmoil in Libya that has pushed oil prices to $116 per barrel. He adds saying, “Russia needs our investment and we need its resources.”

Super-majors like ExxonMobil and BP’s invasion into Russia supports Christophe de Margerie’s statement on the investors’ interest in Russia. Here is the list of recent deals in Russia:

Since the beginning of 2011, Russian transactions have accounted for approximately $10 billion out of the total global transaction value of approximately $41 billion.

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