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Gazprom offers Chevron, Total second chance in Arctic - extended

OAO Gazprom, Russia's natural-gas export monopoly, will begin talks with foreign contractors next month to help develop its offshore Arctic Shtokman field, which has enough gas to supply the US for more than five years.

Gazprom sent letters about joining the Shtokman field project to Chevron, Total SA, ConocoPhillips, Norsk Hydro ASA and Statoil ASA, Deputy CEO Alexander Medvedev said today in Davos, Switzerland. State-run Gazprom estimates Shtokman holds 3.7 trillion cubic meters of gas, enough to meet US demand for five years. „Reserves are the great prize, and Gazprom will determine the terms of the deal,” said James Fenkner of Red Star Asset Management, which manages more than $100 million in Moscow. President Vladimir Putin has insisted on a bigger share of output for state companies in Russia, the world's largest energy producer, forcing foreign companies to take on junior roles in developing resources.

Royal Dutch Shell Plc last year ceded control of its Sakhalin-2 oil and gas project to Gazprom after the government threatened to halt it on environmental grounds. „When we announced we would develop the project ourselves, we meant that 100% of our reserves would stay with Gazprom,” Medvedev said in an interview. „It doesn't exclude foreign companies being involved in different capacities.” Talks will start next month, he said. The five companies may accept the chance to work on Shtokman, said Valery Nesterov, an oil and gas analyst at Troika Dialog in Moscow. Shell, now a Gazprom partner on Sakhalin, may also join, he said.

„Oil majors aren't so interested in making money this way, they're interested in stakes,” Nesterov said by phone. „If they have no choice, they'll probably agree to be contractors.” Gazprom originally intended to allot stakes in the project to two or three of the five companies. Gazprom called off the competition October 9, saying it wouldn't share ownership. „The foreigners have more to lose in this, that's why Gazprom's negotiating position is so strong,” Fenkner said by phone, declining to say if Red Star owns Gazprom shares. Gazprom CEO Alexei Miller said last year that the priority for Shtokman gas is filling a pipeline being built under the Baltic Sea to Germany. The field, located 500 kilometers (310 miles) offshore in deep Arctic waters, poses new technological challenges to Gazprom, said Stephen O'Sullivan, an oil and gas analyst at Deutsche UFG in Moscow.

„Gazprom will need to tie up with someone to develop Shtokman,” said O'Sullivan. „There's a constant need to replace declining production.” A liquefied natural gas plant, capable of supplying Shtokman gas to the US by tanker, is also under consideration. Gazprom has no experience of its own developing LNG. Total confirmed talks with Gazprom have resumed. „Total is still interested in working to develop Shtokman and we are speaking with Gazprom on how to do this,” said Paul Floren, a spokesman for the company in Paris. Statoil and Norsk Hydro couldn't confirm receiving letters from Gazprom. „I'm not aware of a letter,” said Peter Mellbye, Statoil's head of international operations. „We have said we're interested in becoming a partner in Shtokman as an owner. That is still the case,” Mellbye said today by mobile telephone. (Bloomberg)