Russia's governmental commission for foreign investments has rubberstamped a proposal from oil giant Rosneft to sell its 10% stake in its ambitious multi-billion-dollar project to explore and develop a group of oil and gas fields in East Siberia to global oil trader Trafigura.
The project, widely known as Vostok Oil, is being promoted by Rosneft and its partner Neftegazholding, as a starting point to explore and develop a new oil and gas province in the remote Krasnoyarsk region in the Russian Arctic.
Rosneft said in a statement on Tuesday that its board of 11 directors — which includes just two governmental representatives — approved the deal with Trafigura at a meeting on 16 November.
Rosneft and Trafigura have yet to disclose details of payment for the stake in Vostok Oil, however, it is expected to involve Russian and international banks.
A Trafigura spokesperson told Russian state agency Tass that the company is in talks to finalise terms of the deal, and "is happy to be part of such project".
Rosneft - Trafigura ties
Trafigura — which is headquartered in Singapore but conducts most of its business from Switzerland — has been Rosneft’s prime trading partner since 2013 when the trader extended a $10 billion loan to the Russian oil producer to assist its takeover of Anglo-Russian oil venture TNK-BP.
The loan was secured by future deliveries of oil and products from Rosneft to Trafigura.
Trading ties between the two companies grew stronger after 2014 when the US and Europe introduced sanctions against Rosneft, cutting it from inexpensive Western project financing, in response to Russia's annexation of Crimea from Ukraine.
Rosneft's other contracts
Additionally, Rosneft said that its directors rubberstamped other major contracts that Rosneft signed this year as part of its push to move forward with the long-discussed project.
The company said that, under its energy supply contract with state-controlled electricity utility Inter RAO, several power generating centres will be built in the Krasnoyarsk region to provide a total of 2.5 gigawatt of power to Vostok Oil.
Another contract, signed with Rosneft-controlled shipyard Zvezda in the Russia's far east, calls for the construction of 10 ice-class oil tankers that will be capable of moving independently in mild ice conditions in the Arctic.
A third approved contract calls for construction and delivery of up to 100 winterised drilling rigs that will be used by Rosneft’s in-house drilling subsidiary, RN-Bureniye, to spud thousands of exploration and development wells under the projects in the next 15 years.
Industry analysts in Moscow have linked a sudden spike in Rosneft’s activity at Vostok Oil with its talks with the government over terms of an agreement to obtain major tax concessions for the Vankor oilfield, the company’s flagship development in the Krasnoyarsk region.
Rosneft expects to sign this contract with authorities before the end of this year to obtain annual tax deduction up to 46 billion roubles ($600 million) for its Vankor operations from 1 January 2021, its executive said at the end of the last week.
These savings are planned to be used to underpin massive investment into Vostok Oil, estimated by Rosneft at $130 billion during its lifetime.
Fields to be developed
Vostok Oil intends to explore and develop the Paiyakhinskoye field, licenced to Neftegazholding, as well as Rosneft’s West Irkinsky and East Taymyr blocks in the Krasnoyarsk region.
The project also includes the Baykalovsky block where Rosneft’s partner is UK supermajor BP.
Rosneft said that confirmed oil reserves of the blocks under Vostok Oil’s control stand at 44 billion barrels, against its assessment of 37 billion barrels presented by company’s chairman Igor Sechin to President Vladimir Putin in February.