Russia 090804 Basic Political Developments

Russia specifies FSC timber for Winter Olympics

http://www.ttjonline.com/story.asp?sectioncode=17&storycode=60003&c=2
4 August, 2009

Forest Stewardship Council (FSC) certified timber has been specified for use in the 2014 Winter Olympics in Russia.

FSC-certified timber is recommended for use in all construction work, including new buildings, transport and energy infrastructure. The Games’ green specification standard says only wood with legal documentation and proof it does not come from conservation areas will be permitted to used.

“It is the first time during the 10 years that FSC has been established in Russia that FSC certification and FSC-certified products are endorsed for internal use by the Russian government,” said Andrei Ptichnikov, director of FSC Russia’s national office.

The games will be held in the Black Sea resort city of Sochi.

Logging Laws Cut Investment

http://www.themoscowtimes.com/article/600/42/380151.htm
04 August 2009By Maria Antonova / The Moscow Times

The web site for the Ivanovo regional administration proudly displays Czech plans to build an 870 million ruble ($28 million) timber-processing plant.

This is the kind of project that the region’s forestry committee has used to justify its reluctance to lease small plots to small and medium-size forestry companies. It wants big investors.

The catch is that the Czech plant, which was approved by the regional administration in September, has never materialized. Industry insiders said that of 187 investment projects in the timber industry that have been approved by the Industry and Trade Ministry, investors have stayed put for only five.

Most of the projects are “soap bubbles,” flaunted by regional administrations and existing only on paper, and even the few remaining investors may quit soon, said Denis Sokolov, director of the Timber Industry Confederation of the Northwest, a lobby group.

Financial crisis aside, Russian forests are not commercially attractive to international timber companies, which would need to invest more than 1 billion euros ($1.4 billion) to build a single large paper plant in a forest-rich area. The high cost is associated not only with the plant but with the construction of transportation, energy and housing infrastructure required to reach the country’s 880 million hectares of forests, much of which is remote and underdeveloped.

The Forest Code leaves responsibility for those costs to the investor, while the government merely gives them access to the forest on preferential terms. Faced with such hurdles, companies tend to choose ­tropical timber markets, where denser biomass provides a bigger profit margin and facilities do not have to be heated during the winter.

What exactly derailed Czech company CE Wood’s plans to build a timber-processing plant in the Ivanovo region is unclear.

The holding was expected to build the plant within two years and invest into forest works in the region while operating on a 49-year lease.

The Ivanovo regional administration, in an e-mailed reply to faxed questions, would only say the plant had not been built because “the investor stopped activities on the project in the region.”

It did not say why the project remained on its web site. But a regional forestry committee official called the administration’s announcements about the investment “just PR.” Moreover, the project was supposed to be developed using bank loans, which is unlikely given the credit crunch, he said.

The September decree that approved the project expired in June, he added.

CE Wood, which offered to construct the facility in March 2008, declined to comment when asked to explain its departure.

The federal government had hoped to attract investors like CE Wood with the Forest Code, a law that has been implemented in phases since 2006 in an effort to reform the industry. Investment projects that boost deep processing of timber are part of the government’s plans to lead the country away from exporting cheap rough timber. Such exports made up about 30 percent of the industry’s total production last year.

According to the Forest Code, investment projects in the timber industry need to receive at least 300 million rubles ($9.6 million) of investment into infrastructure or timber processing facilities to receive access on preferential terms and bypass the auction procedure.

Both President Dmitry Medvedev, who worked as a director at Ilim Pulp in the 1990s, and Prime Minister Vladimir Putin have publicly endorsed the development of timber processing as a national goal. As part of that effort, the government had intended to hike export tariffs for rough timber to 50 euros per cubic meter at the start of this year, hoping to encourage exports of timber products with higher added value. The tariff would have made it essentially impossible to export rough timber, industry players said, and in November the government delayed the hike by nine to 12 months.

Putin attempted to re-engage interest in the country’s rough timber at a meeting with Finnish Prime Minister Matti Vanhanen in early June. “It’s important for our Finnish friends to use this time-out to develop deep processing industries for timber on Russian territory,” he said at the time.

But his words appear to have fallen on deaf ears. Between 6 million and 10 million cubic meters of rough timber have been stuck at the Russian-Finnish border since September as Russian exporters hope that their contracts with Finnish importers will be renewed, Finnish radio station YLE reported July 14.

The Finns instead have introduced a program to use domestic timber, while China, another big importer, is now taking Canadian timber, said Sokolov, of the timber industry confederation.

“We have lost those markets because they know the tariffs will be introduced eventually, and the one-year time-out doesn’t change anything,” he said.

It’s already been a rough first half for the industry. Board lumber, hardboard and plywood output in the first six months of 2009 is down 30 percent to 40 percent compared with last year, according to the State Statistics Service. Pulp and paper products are also down, by 10 percent to 30 percent.

Roughly a quarter of the country’s timber is used as firewood and for other personal needs, while about 30 percent is exported before processing.

Russian timber is also facing a formidable challenge from tropical countries. Sokolov said a large plant producing 1 million tons of pulp per year would require 5 million hectares of Russia’s northern forest but only 700,000 hectares of tropical forest. It is no wonder then that Stora Enso, a Finnish company that considered a project in Nizhny Novgorod last year, eventually went to Uruguay, Sokolov said.

With the conditions set by market forces, the credit crunch and the Forest Code, the industry could soon lose all small timber producers, and no large investors will materialize to take their place, said Alexei Yaroshenko, director of the forest program at Greenpeace. The industry is currently contracting by about 10 percent every month, he said.

Activity in the Oil and Gas sector (including regulatory)

Monday, August 3, 2009

Russia looks to revive oil deal with Iraq signed with Saddam

http://www.worldtribune.com/worldtribune/WTARC/2009/eu_russia0618_08_03.asp

MOSCOW — Russia intends to conclude a major energy deal in Iraq.

Officials said Russia's Energy Ministry wants to obtain final approval from the Baghdad government for participation in Iraq's West Qurna-2 crude oil project.

Russia's LukOil has sought implementation of a contract signed with the former Saddam Hussein regime for the development of West Qurna-2 and suspended in 2002.

"In the first half of August, I will visit Baghdad," Russian Energy Minister Sergei Shmatko said on July 31.

In August, the Iraqi Oil Ministry was expected to reopen bids for West Qurna-2, with oil reserves estimated at six billion barrels.

Officials said Russia, which wrote off $12 billion worth of debts to Iraq, was promised that LukOil would be a key bidder in any tender.

They said Iraq would seek investments of $4 billion.

Petrom reports new oil and gas discoveries in Russia

http://www.wall-street.ro/articol/English-Version/69071/Petrom-reports-new-oil-and-gas-discoveries-in-Russia.html

The tests of Lugovaya-1 well confirm gas and oil accumulations, and the production is of approximately 6,500 boe/day. Petrom, the largest oil and gas producer in South-East Europe has reported both gas and oil discoveries in the exploration well Lugovaya. The well is located in Kamenski license in the Saratov region (Russia).

Lugovaya-1well was tested and flowed from a hole test conducted at 3,882 m depth. The first tests are very encouraging, revealing a flow rate of over 2,500 bbl/d light sweet oil in one zone and two gas-bearing formations flowed combined 550,000 cm/d sweet gas as well as 75 cm/d condensate (4,000 boe/d).

“The exploration success and especially the well’s capability of flowing at such high rate are very encouraging and confirm the concepts developed together with our peers in Russia, by a mixed team of geologists”, said Johann Pleininger member of Petrom Executive Board, responsible for Exploration and Production Division.

Petrom started operating in Russia in 2006, after the acquisition of 74.9% equity in Ring Oil Holding & Trading Ltd, and jointly conducted exploration operations with the minority shareholder of eight blocks in Saratov region, located 1,000 km Southeast of Moscow and in the area of Komi, 1,200 km Northeast of Moscow.

Matra subsidiary contracts drilling rig.

http://www.youroilandgasnews.com/matra+subsidiary+contracts+drilling+rig._36885.html

Tuesday, Aug 04, 2009

Matra is pleased to announce that its 100% owned Russian subsidiary “OOO” Arkhangelovskoe” has signed a turnkey contract with Petro-Management Drilling Company for the drilling of well-13 in the Sokolovskoe Field in Orenburg. The rig to be utilised is an Uralmash-4E electric rig.

Site preparation has commenced at the well-13 location and mobilisation of the rig will commence within the next few days. The contract allows for a 6 week period for mobilisation and commissioning of the rig at the new location and drilling to 3850m is expected to take approximately 120 days, after spud, at a cost of $4.5million (excluding VAT).

Matra’s Managing Director, Peter Hind said:

“We are pleased to get drilling operations underway – we expect to spud the well in mid-September and to have the well results very early in the New Year. This is a very important well for Matra and we will report again once the well has spud.”

Source: Matra Petroleum

Tatneft Drills Horizontal Wells in Tatarstan Oil Fields
OAO Tatneft  8/3/2009
URL: http://www.rigzone.com/news/article.asp?a_id=78889

OAO Tatneft has built 200 new horizontal wells and about 50 lateral horizontal wellbores in the oil fields of Tatarstan. Drilling of such wells is performed in the oil fields with complicated geological structure.

The drillers have mastered the technology of drilling branched horizontal wellbores both in different productive strata, as well as same layer. Drilling in productive layers is carried out in the mode ensuring maximal preservation of the natural reservoir permeability. Average oil production rates of the horizontal wells and the lateral horizontal wellbores is significantly, sometimes two-fold, higher, than the production rates of vertical and directional wells.

Drilling of the horizontal wells is performed with application of screw type downhole motors with variable geometry and MWD telemetry systems with hydraulic and electromagnetic communication channels. The length of the conventionally horizontal wellbore section in the formation extends up to 650 meters. Penetration is carried out through the mostly oil saturated part of the formation within a one meter "corridor" of drilling thickness.

Urals Energy finally transfers Dulisminskoye field to Sberbank - might be a new owner very soon

http://www.businessneweurope.eu/dispatch_text9392

VTB Capital, Russia

August 4, 2009

News: Urals Energy is divesting 100% of its wholly owned subsidiary ZAO NK Dulisma (which holds the Dulisminskoye oil and gas field) under an agreement to OOO Sberbank Capital (a wholly owned subsidiary of OAO Sberbank), for the full discharge of a USD 130mn loan and partial discharge of a USD 500mn loan. The company also stated that there had been progress over settling the remaining portion of the USD 500mn loan with Sberbank. This loan is related to the company's acquisition of a 35% stake in the Taas-Yariakh assets in East Siberia, which requires regulatory clearances and third party actions.

Vedomosti speculates that the main candidate for purchasing the Dulisma field from Sberbank is Alliance Oil Company.

Our View: The news is not a surprise. Back in January 2009, Urals Energy approved the transfer of 99% in Dulisma and 35% in Taas-Yariakh to Sberbank in order to repay its loans. At the end of June 2009, trading in the shares of Urals Energy was suspended.

As of 31 December 2007, the proved reserves of the Dulisminskoye field were 43mmbbl of crude and condensate and 13bcm of gas. At USD 500-700mn, the price of the Dulisminskoye field (based on proved reserves) implies an EV/Reserves ratio at USD 4.0-5.6/boe (or a 56-119% premium to the current average EV/Reserves of Russian oil and gas companies).

The Dulisminskoye field is located in East Siberia and we expect the zero export duty to be introduced for it in the near future. Should Alliance Oil Company acquire the field, it would be a positive development for the company, increasing its production portfolio. In addition, the field is close to the Khabarovsk Refinery (which Alliance Oil Company owns).

Exxon Ignores Pleas From 50,000 People To Halt Damaging Activities That Threaten Rare Whales

http://www.voxy.co.nz/national/exxon-ignores-pleas-50000-people-halt-damaging-activities-threaten-rare-whales/5/19987

4 AUGUST 2009 - More than 50,000 people have demanded that oil and gas giant ExxonMobil and several other companies suspend damaging industrial activities that harm the Western Gray Whale, one of the world*s most critically endangered whales.

The thousands of signatures from around the world were delivered on petitions to the CEO of ExxonMobil in Irving, Texas, and Exxon*s Moscow headquarters, just as the first whales arrived in their summer feeding grounds - the area of Exxon*s Sakhalin I oil and gas project - at northeast Sakhalin Island, in the Russian Far East. Pacific Environment and WWF, which delivered the petitions, requested a response from Exxon within two weeks, a deadline that passed today.

The petition urges Exxon, Rosneft, and other oil companies operating in the area to suspend all oil and gas development activities near the critically endangered Western Gray Whale*s annual feeding habitat off the coast of Sakhalin Island, and calls for the creation of the Sakhalin Marine Federal Wildlife Reserve.

There are only about 130 Western Gray Whales remaining, including just 25 breeding females. These whales feed only in the summer and autumn, and their primary feeding area lies in and adjacent to Exxon*s Sakhalin-1 project in the Piltun Bay area.

*The Western Gray Whale population is at great risk of extinction,* said Aleksey Knizhnikov, Oil & Gas Environmental Policy Officer, WWF-Russia. *It is imperative that all oil companies operating in its feeding area acknowledge the effects of their operations on the whales, which have just arrived to feed for the summer, and immediately halt all damaging industrial activities until the whales have left.*

The Western Gray Whale Advisory Panel (WGWAP), composed of 11 prominent international scientists, met in April with representatives from Shell and Sakhalin Energy, as well as WWF and Pacific Environment to discuss how oil and gas development is affecting the whales* main annual feeding area off the Sakhalin Island. The WGWAP reiterated their urgent plea for a moratorium on industrial activities carried out by oil and gas companies that are expected to disturb Western Gray Whales in and near their primary summer/autumn feeding season (July through October). Scientists on the panel have called for the moratorium following a large decrease in the number of whales in their annual feeding area near the shore during a period of loud industrial activity in the summer of 2008, including a seismic survey. This is significant because if the whales are displaced from this primary annual feeding area, they may have less success surviving and reproducing.

*Noise from oil and gas development is displacing the whales from their main annual feeding area,* said Leigh Henry, Program Officer, WWF. *Any disturbances or additional stresses on the Western Gray Whale could push the already critically endangered population closer toward extinction.*

Sakhalin II project sponsors, including Shell, Gazprom, and other companies heeded scientists* warnings and postponed the seismic surveying they had planned for 2009. However, Exxon, Rosneft, and BP have so far refused to amend their summer 2009 construction and extraction plans in and around Piltun Bay.

*Immediate action is needed,* says Doug Norlen, Policy Director for Pacific Environment. *Over 50,000 people have joined scientists in calling on Exxon, Rosneft, and others to stop their potentially destructive activities at Sakhalin Island and every single one of these people will be watching to see if these companies do the right thing for the Western Gray Whale.*

Gazprom

Scorpion Offshore risks losing USD3.8m revenue in Gazprom dispute

http://www.tradingmarkets.com/.site/news/Stock%20News/2456461/
Mon. August 03, 2009; Posted: 09:23 AM

Aug 03, 2009 (M2 EQUITYBITES via COMTEX) -- SRPOF | Quote | Chart | News | PowerRating -- 3 August 2009 - Oslo-listed but Bermuda-based drilling rig operator Scorpion Offshore Ltd (OSL: SCORE) said last Friday it risks losing USD3.8m in revenue in a worst-case scenario in a dispute with Russian majorGazprom OAO (MCX: GAZP). In a fleet status update, Scorpion said that Gazprom is disputing the stated revenue as the Russian giant considers that 550 hours were lost in May 2009 for the jack-up rig Offshore Vigilant, which it has chartered from Scorpion, as a result of "fishing jobs".

Scorpion and Gazprom have hired a third party to find a solution. Scorpion will not book the revenue before the issue is resolved.

(EUR1 = USD1.4)