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Total to buy Novatek stake for $4bn

French oil giant Total became the third energy company to forge an alliance in Russia this year, agreeing to pay $4 billion for a stake in top gas independent Novatek and joining its Arctic gas project.

The foray by the French company follows strategic offshore exploration alliances struck in January by state-controlled oil major Rosneft with Britain's BP and US ExxonMobil.

The deals, all signed under the patronage of Prime Minister Vladimir Putin, represent a major shift in Russia's energy strategy away from the knockabout oligarchic capitalism of the 1990.

Now, companies either controlled by or allied with the Kremlin, are contributing reserves and keeping control, while foreign partners get minority stakes in return for contributing know-how and experience.

The latest deal, under discussion since the middle of last year, fits that pattern, with Total signing a memorandum of understanding to acquire 12.08% in Novatek at a cost of $4 billion, with a view to raising its holding to 19.4% within three years.

Under a second memorandum, signed by company bosses Christophe de Margerie and Leonid Mikhelson, Total will acquire a 20% stake in Yamal LNG, contributing its technical expertise to one of Russia's most ambitious liquefied natural gas projects. Novatek will hold a 51% interest in the project.

"This is a very good deal which has huge prospects," Reuters quoted Putin as saying at the ceremony.

The Yamal LNG project will develop the South Tambey condensate and gas field in the Arctic area of the Yamal peninsula.

South Tambey holds an estimated 44 trillion cubic feet of gas, allowing production of more than 15 million tons of LNG per year, Total said in a statement announcing the deal.

The project will give Total access to proved and probable reserves of about 800 million barrels of oil equivalent within the licence duration with a plateau production of about 90,000 boe per day in the next decade, the conmpany said.

It is expected to start producing LNG by 2016, with output to rise to 15 million metric tons per year, according to today’s documents.

The project needs $20 billion of investment, Bloomberg reported.

"Total's participation in the project gives us extra confidence that it will be implemented on time," Novatek chief executive Leonid Mikhelson said.

Novatek plans to invite as many as four partners for the planned LNG project, targeting companies with experience and market share, chief executive Leonid Mikhelson said in January in an interview in Davos, Switzerland.

He said today that Total would remain the largest foreign holder.

The deal is expected to close in July this year.