Elf, Yuksi firm up alliance plans for Russian projects

France's Elf Aquitaine and Russia's Yuksi have begun to outline joint development plans for the strategic alliance they formed last month (OGJ, Mar. 30, 1998, Newsletter).

Yuksi Chairman and CEO Mikhail Khodorkovski and Elf Chairman and CEO Philippe Jaffr? last week signed a framework agreement under which the two firms will undertake joint projects.

Khodorkovski said, "We are already advancing joint initiatives that will significantly enhance Yuksi's operating efficiency as well as help us achieve the high standards of transparency and accountability expected of a world-class oil company."

Yuksi, now the world's largest private oil company, was formed in January by the merger of two Russian firms, Yukos and Sibneft (OGJ, Jan. 26, 1998, p. 42). Its proven reserves are 23 billion boe, of which 16.l billion bbl is oil. Yuksi produces 1.3 million b/d of oil, making it the world's third biggest producer.

Development plans

In exchange, Elf will offer Yuksi the option to take an interest in certain of its activities, upstream and downstream, to be determined later.

Sugmut development is estimated to cost about $1.5 billion. Elf hopes production will start in 2002.

The firms also will study a joint development of the giant Prirazlom field in western Siberia. This field is estimated to hold 1 billion bbl.

Other plans involve evaluation of the giant Yurubcheno-Tokhomo gas field in eastern Siberia and cooperation in the area of petroleum products distribution.

The agreement also will involve cooperation in Yuksi's downstream business, which includes five refineries and about 1,000 service stations. Elf will assist Yuksi in the evaluation of its service station network, with a view to long-term development.

Another project being mulled is the possible takeover of Russian firm Rosneft, due for privatization soon (OGJ, Feb. 2, 1998, Newsletter). Three groups are thought to be hoping to gain control of Rosneft: Lukoil and Royal Dutch/ Shell; Onexim Bank and British Petroleum plc; and Yuksi.

While Elf says it is studying possible participation in the privatization of Rosneft with Yuksi, Yuksi has indicated that it is studying the matter with Elf but also with other companies such as Conoco Inc.

In addition to joint operations projects, the alliance agreement advocates sharing experience and skills through exchanges of engineers, technicians, and financial and management experts. This will "further mutual knowledge and comprehension, which are indispensable for the good implementation of joint industrial projects," said Elf.

Benefits of the deal

Jaffr? called the agreement "a major element in our group's establishment and development in Russia." He said, "(Yuksi's) management has demonstrated its will and capacity to restructure Yuksi according to international standards. Elf is ready to lend its support in carrying out this objective."

Indeed, the agreement is a major step in Elf's 10-year strategy to form a third group of producing affiliates outside West Africa and the North Sea, which provide most of its oil and gas. Elf points out that the 350 million bbl of reserves that will be its share in the Sugmut association account for 10% of its own 3.4 billion boe of proven reserves, and that the cost to Elf will be relatively low.

In Russia, Elf is also involved in the Timan-Pechora region, where it operates the Shapkino field, and in the Caspian Sea through the SeverTek joint venture in Azerbaijan (see related story, this page, and OGJ, July 29, 1996, p. 36). It also is a partner in the Shakh-Deniz permit in the same area, where a first well is to be drilled this year.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.