Total, Novatek to develop Termokarstovoye gas field

Total SA will develop the onshore Termokarstovoye gas field in Russian Arctic under a joint venture with OAO Novatek, Russia’s largest independent gas producer.

Uchenna Izundu
OGJ International Editor

LONDON, June 25 -- Total SA will develop the onshore Termokarstovoye gas field in Russian Arctic under a joint venture with OAO Novatek, Russia’s largest independent gas producer.

Russian Prime Minister Vladimir Putin said the deal indicated Russia’s strategic gas fields were open to foreign investment.

According to a heads of agreement, Total will take a 49% interest in Terneftegas, a wholly owned subsidiary of Novatek, with the remaining 51% interest in Novatek’s hands.

A final investment decision on the estimated $900 million project is expected in 2011 once Novatek and Total complete appraisal and development studies. Termokarstovoye is 250 km east of Tarkosale where Novatek operates a processing facility for its own onshore production. The field has a potential of more than 47.3 billion cu m of gas and about 10.3 million tons of condensate.

Total's "technological capabilities will complement our experience developing complex geological assets and facilitate the effective development of the remote Termokarstovoye field," said Leonid Mikhelson, chief executive of Novatek.

The deal shall be closed upon approval of the Federal Antimonopoly Service.

It builds upon Total’s other projects in Russia, including Shtokman gas and condensate field in the Barents Sea where the final investment decision is to be made next year. The Shtokman first development phase will produce 23.7 billion cu m/year, including 7.5 million tons/year that will be exported as LNG.

Total also operates Kharyaga field n the Nenets Autonomous Region. Under the third phase current production level will rise by 50%, up to 30,000 boe/d by 2011.

According to an analyst report from the Royal Bank of Scotland, the partnership between Total and Novatek could lead to expanded LNG cooperation on the massive South Tambey field.

“Termokarstov holds less than 6-7% of overall Novatek reserves, and we believe that by 2013 the field would contribute only about 1 billion cu m, or less than 2%, to Novatek production based on the 51% stake,” the report said. “Novatek needs an international partner to develop this field and build an LNG facility, and we believe that Total, one of the top three companies worldwide in LNG and with an existing relationship with Novatek, is an ideal partner. Future cooperation on LNG is also facilitated by the enthusiastic support of the Kremlin, with Putin also calling for higher Russian LNG production.”

Foreign investors have been hesitant to develop projects following Royal Dutch Shell PLC’s significant cession of its stake in Sakhalin-2 to OAO Gazprom under intense government pressure. Under a draft law, the government stipulated Foreign companies need approval from a special government commission if they want to participate in developing strategic oil and gas fields.

Christophe de Margerie, chief executive officer of Total, told the Moscow Times, “I don't think it's difficult to work in Russia. One only needs to learn to work efficiently with Gazprom, Novatek, and Rosneft. We're prepared to invest more into the Russian economy.”

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