Russia and Iraqi Oil

Tags: Russian-Iraqi relations, Commentary, Business, Russia, World, oil extraction Pershkina Anastasiya Jan 19, 2012 20:57 Moscow Time Photo: RIA Novosti Five Russian companies will fight for Iraq oil tender. The auction will take place in April this year. Among the candidates are Russia’s state oil company Rosneft and the Bashneft Company, for which the geological survey in Iraq may become its first project abroad. Iraq has been holding auctions for its deposits since 2009. However, it is for the first time that it has decided to offer foreign companies a tender for geological survey, not for oil extraction. On the one hand, this could reduce interest in the auction, and on the other, we know that up to 15 per cent of the world reserves of oil are concentrated in Iraq. This fact dispels all doubts, which all those who are involved in the oil extraction business may have. Russia has never had any doubt, though, an analyst with the Moscow-based “Investcafe” agency, Vitaly Mikhalchuk, says. "Specialists from the former Soviet Union worked in Iraq earlier, and today Russia continues oil extraction in Iraq, taking into consideration the following: first, all these are promising deposits and second, Russian companies have sufficient experience of working in Iraq. For example, the LUKOIL Company is developing the West Qurna -2 oilfield in Iraq and the Russian gas giant Gazprom is developing Iraq’s Badra oil deposit." The Iraqi authorities’ interest in developing cooperation with the Russian companies can be explained not only by economic but also by political factors. The USA and Britain would like to get involved in the development of Iraq’s resources too. However, Iraq’s relations with these two countries are tense. That is why there’s reason to believe that Iraq will prefer to work with Russian companies, which is expected to be mutually advantageous cooperation, the President of the Union of the Oil and Gas Industrialists Gennady Shmal says. "The cost of oil extraction in Iraq is much lower than in Russia. Besides, the logistics sector in Iraq causes no pain at all. Europe, Japan, China, and many other countries buy Iraq’s oil with pleasure. Therefore, the companies working in Iraq show high economic indices, which means that such cooperation is beneficial for them." Both the development and the geological survey of deposits abroad mean consortium working with other companies. Powerful tandems can emerge in the course of such work. As an example, we can mention here the cooperation between Russia’s state oil company “Rosneft” and the American Exxon Mobil Corporation. These two are developing the Black Sea Shelf, sharing the existing risks. The Exxon Mobil Corporation undertakes the greater part of spending for geological survey, and its Russian partner gets involved at the stage of development. For a joint participation in the tender “Bashneft” has chosen the Vietnamese company PetroVietnam. It is a very interesting partner, continues Gennady Shmal: "Any alliance is of great help in using the experience which the two sides have acquired. For example, the Vietnamese company, PetroVietnam” is developing the White Tiger deposit in the southern part of the country. This deposit is considered to be a very difficult one – that is why cooperation would be only welcome there." The main problem in Iraq is the fact that its infrastructure was practically ruined during the war. Besides, the debates about the oil-and-gas law were again delayed in early January. The Kurdistan Regional Government and the federal government of Iraq have been debating about the control of the oil and gas deposits in the country for nearly 2 years now. The interest of the parties concerned is quite understandable but foreign companies whose rights are defended by no law at all may suffer as a result. =========== Statoil to Sell Stake in West Qurna-2? Posted on 15 January 2012. Tags: Statoil, West Qurna The Middle East Economic Survey (MEES) reports that Norwegian producer Statoil ASA is trying to sell its stake in the West Qurna-2 oilfield. According to the report, the company may use the negotiations to improve the terms of the West Qurna-2 contract and decide against pulling out. If a sale happened, it would be the first re- sale of energy assets awarded to international companies during Iraq’s 2009 auction round. ================ Global oil and gas M&A faces tough 2012 Thu, Jan 19 13:53 PM EST * Funding difficulties could limit deals in 2012 * Global oil, gas M&A hit $317 billion last year * Shale-related transactions tipped for growth By Oleg Vukmanovic LONDON, Jan 19 (Reuters) - Oil and gas company mergers and acquisitions rose in number but fell in total value in 2011 due to a decline in transactions topping $1 billon, according to an analysis of activity by global law firm Ernst & Young . Funding difficulties and euro zone debt fears could keep a leash on deal-making in 2012, particularly in the economically sensitive parts of the downstream sector, the firm warned. Companies struck 1,322 deals worth $317 billion, compared with $341 billion recorded in 2010 due to a decline in mega-deals from 76 to 71. The number of deals rose by more than 5 percent. North America continued to fuel activity with 562 deals in the upstream sector, but Europe and ex-Soviet states saw the strongest growth, the report said. "The oil and gas market has proved that it can adapt to higher levels of uncertainty and keep transacting. The key questions now are how it will cope with the combination of commodity price volatility and structural contraction in global debt capacity," Andy Brogan of Ernst & Young's transaction advisory services said. Shale-related transactions are tipped to see growth as China moves to develop its unconventional resource base, the biggest in the world with 19 percent of global reserves. About $66 billion was spent on shale transactions. Activity in the downstream sector declined modestly during 2011, but overall values were comparable with 2010 levels. "Downstream activity will continue but may be more concentrated in storage and midstream rather than refining." Brogan said. In oilfield services, high capitalization rates and opportunism meant an increase in deal activity that is set to continue in 2012, "underpinned by those seeking new geographies, new customers and new technologies", the firm said. ===================== Iraq, Lukoil Award $998M West Qurna Deal to Samsung THURSDAY, 26 JANUARY 2012 07:39 RIGZONE.COM Basra. Iraq and Russia's OAO Lukoil Holding have awarded a $998 million deal to south Korea's Samsung Group to develop the supergiant West Qurna phase 2 oil field, the Iraqi government said in a statement Wednesday. Government spokesman Ali al-Dabbagh said Samsung would build a central processing facility for oil production in the field. "Work in the processing facility is expected to finish in 31 months from the start of the work," Dabbagh said following a weekly cabinet meeting. Lukoil and Norway's Statoil ASA were awarded a 20-year service contract for West Qurna Phase 2 in Iraq's second licensing round held in December 2009. The companies promised to get the southern field pumping at a rate of 1.8 million barrels a day for payment of $1.15 a barrel with first oil planned for early 2013. =============== Bulgartransgaz Reports 1/3 Drop in Russian Gas Supplies Energy | February 3, 2012, Friday| 295 views According to Bulgartransgaz CEO Kiril Temelkov, Russia has slashed gas deliveries to Bulgaria, Greece, Turkey and Macedonia by 1/3. Photo by actualno.com Russian gas supplies to Bulgaria, Greece, Turkey and Macedonia have been reduced by 1/3, according to Kiril Temelkov, CEO of Bulgaria's state-owned gas transmission operator Bulgartransgaz. "At present, gas supplies for Bulgaria, as well as volumes of gas exported for Greece, Turkey and Macedonia, have been slashed by over 30%," Temelkov said in an interview on Friday. Bulgartransgaz' CEO explained that Bulgaria was using its own reserves to make up for the gas supply restriction amid the severe winter weather. On Thursday, Dimitar Gogov, CEO of state-owned gas supplier Bulgargaz, told Capital Daily that natural gas consumption in Bulgaria had gone up by 10-15% over the cold spell of the last days. He told journalists that increased demand was being met by tapping reserves from the Chiren gas depot and from local gas production, which he said was quite scant. Gogov added that the consumers had been advised to stick to the contracted volumes of natural gas. Gogov further explained that, although the Chiren gas depot contained reserves for 90 days, only limited quantities of gas could be taken out of it on a daily basis, and the volumes would not suffice to meet soaring consumption. Earlier on Friday, EU observer noted that impact of the sharp drop in Russian gas supplies had spread to a total of nine countries, including Italy, Austria, Slovakia, Poland, the Czech Republic, Bulgaria, Greece, Hungary and Romania. Gas supply restrictions first hit Italy on Tuesday. Tags: Bulgartransgaz, Kiril Temelkov, Dimitar Gogov, Bulgargaz, natural gas, Russian gas, Chiren =================

Lukoil Overseas to ink $3bn contracts under Iraqi project

RBC, 23.06.2011, Moscow 12:45:24.Lukoil's foreign arm, Lukoil Overseas, plans to sign contracts worth $3bn in line with the West Qurna-2 project in Iraq before September, Lukoil Overseas President Andrey Kuzyaeyv said at an annual general meeting of shareholders today.

Additionally, Lukoil President Vagit Alekperov said today that the oil major would announce the takeover of a large foreign upstream asset in September. Lukoil set aside around $2bn for acquisitions in 2011, he reiterated.


More feasible that Valares? $2bn allows for a 17% premium to the current SP. Haha, whatever.

"Lukoil President Vagit Alekperov said today that the oil major would announce the takeover of a large foreign upstream asset in September. Lukoil set aside around $2bn for acquisitions in 2011, he reiterated."

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IEA collective action – June 23, 2011
http://www.iea.org/files/faq.asp
Frequently asked questions

How many times has the IEA undertaken such a “collective action”? When was the last time?
On a global scale, this is the third time IEA member-country stocks have been used. IEA member countries released oil stocks in 2005, after Hurricane Katrina damaged offshore oil rigs, pipelines and oil and gas refineries in the Gulf of Mexico. The only other occasion IEA member countries mandated a stock release was at the time of Iraq’s invasion of Kuwait in 1990/1991.

How exactly will stocks be made available to the market in each of your member countries? What mechanism is used?

Member countries have different stockholding systems. Some have large reserves of public stocks, like the US, Japan and Germany, which can be offered to the market through loans or sales. Other countries have sizeable stockholding obligations on commercial oil industry operators which can be lowered in order to make these volumes freely available to the market. In some instances, a combination of public stocks and reduced obligation on industry is used, and it would be up to each country to decide how make additional oil available to the market. Finally, stocks can be in the form of crude oil of various grades, products or a mixture of the two.

How much time will it take for these stocks to become available?
Oil supplies from IEA member countries should begin hitting the market around the end of next week.

How much oil will each country release? Will each country release the same proportional amount, or will some countries do more? How is that decision made?
Country shares are based on their proportionate share of total IEA oil consumption – so larger oil-consuming countries obviously have a bigger share in the overall release. In this case, all IEA countries holding strategic stocks and representing more than 1% of IEA final oil consumption are participating. It is expected that North America will release 50 percent of the total, with European countries releasing some 30 percent and Asian countries providing the remaining 20 percent.
The IEA will produce a tally once it has a clear indication of the types of oil that each country will make available.

Has the IEA consulted with OPEC or Saudi Arabia on this decision? Would this IEA action not discourage Saudi Arabia and other willing OPEC members from increasing oil production?
The IEA and its member countries have been in close contact with key oil producing countries, and in particularly with Saudi Arabia, which holds the lion’s share of OPEC’s spare capacity. The IEA welcomes the announcement made by Saudi Arabia that it intends to make incremental oil available to the market. However it will take time for these incremental barrels to be produced and shipped to consuming markets; the use of IEA strategic stocks now will help bridge the gap until these new supplies are available.
Producers and consumers have a common interest in stabilising oil markets. This point has been highlighted many times before, and is a reason for the IEA’s close liaison with key oil producing countries at all times.

I thought the IEA only does this for supply disruptions in excess of 7%. The 1.5 million-barrels-a-day disruption from Libya doesn’t seem all that much, given that global demand is around 88 mb/d, so why go to all the trouble?
As far back as 1984, IEA member countries understood that a disruption of a much smaller scale than 7% could cause significant economic damage, and thus they adopted more flexible response measures. The two previous emergency IEA actions, in 1991 and 2005, each accounted for less than 7% of world demand. Particularly in a tightening market such as the one we see currently, a relatively small disruption can have a significant impact on the market.

If the disruption from Libya is 1.5 million barrels per day, why are the IEA member countries releasing 2 million barrels per day?
By the end of May the Libyan crisis had removed 132 million barrels of crude from the market. Commercial stocks in the OECD countries have tightened as a result. Because crude demand peaks during the summer season in the Northern Hemisphere, we estimate that preventing further market tightening in the third quarter will require 2 million barrels per day of additional supply. Our action aims to provide market liquidity until incremental production comes to the market.

Libyan supplies have been off the market since February. Why are you only doing this now?
The IEA is prepared to act when there is a significant supply disruption or an imminent threat thereof. Since the Libyan crisis began, the market has focused on the potential for further tightening in both OECD industry stocks and OPEC spare capacity. The onset of the Libyan crisis fortuitously coincided with the peak of the European refinery outages, primarily linked to seasonal maintenance work, and thus lower demand for crude oil. Now, heading into the “driving season” in the Northern Hemisphere, demand for crude will rise as refiners seek to replenish product stocks ahead of rising transport fuel demand. This seasonal increase in demand, combined with OPEC’s announcement at their 8 June meeting not to increase production to fill the gap with the necessary additional supplies, represents an imminent risk, which is why the IEA has chosen to take decisive action now.

Are IEA countries not putting at risk their capacity to react to more serious oil disruptions that may happen in the coming months considering geopolitical uncertainties in MENA countries?
No; IEA countries benefit from a very large safety net with their stocks: Total IEA stocks amount to more than 4 billion barrels, of which 1.6 billion are public stocks held exclusively for emergency purposes. This is equivalent to 146 days of net imports. So even after this 60-million-barrel collective action, all participating countries’ stocks will remain above 90 days of their net oil imports.

Several analysts say this is only likely to have a short-term effect on the market, and that prices will be higher in a month’s time. What’s your response? Will you extend this by 30 days? How will you decide?
Markets move based on today’s fundamentals and expectations of future supply and demand. The coming months, as we head into the driving season, would likely see the impact of the Libyan crisis felt most keenly; this is why the IEA is acting now. Some producer countries have announced their intentions to raise production, but it takes time for these incremental barrels to be produced and shipped to consuming markets. The use of IEA strategic stocks now will help bridge the gap until these new supplies are available. The IEA will continue to monitor the situation. If supply remains disrupted and markets remain tight in the future, the IEA does not exclude another decision to make additional supplies available to the market.

Isn’t the IEA effectively doing this to counter high prices – and in that sense isn’t this fundamentally different from a traditional release in response to a supply disruption? Doesn’t this therefore set a bad precedent, by making the IEA a market manipulator?
The IEA is prepared to act when there is a significant supply disruption or an imminent threat thereof. Since the Libyan crisis began, the market has focused on the potential for further tightening in both OECD industry stocks and OPEC spare capacity, and we are now heading into the driving season in the Northern Hemisphere, which will witness an increase in demand for motor fuels. Refiners’ demand for crude oil is also rising, as plants typically come out of seasonal maintenance and begin ramping up runs to meet peak demand. This action is not about price but rather about ensuring an adequately supplied market to protect the world economy from unnecessary damage when it is in a fragile state.