Vladimir Shlyomin

The company TNK-BP, which was set up in October 2003 as a result of the merger of ÒÍÊ (Tyumenskaya Oil Company), SEDANCO and Russian assets of ÂÐ, is Russia’s third largest oil company with the personnel numbering nearly 100,000 employees. It is operating in almost all oil- and gas-bearing provinces of Russia. The independent company DeGolyer and MacNaughton conducted an audit of the TNK-BP geological assets. Under the criteria of the U.S. Securities and Exchange Commission (SEC), TNK-ÂÐ substituted production for new proved reserves by 133%. This corresponds to the annual average coefficient of increment between 25% and 35% in the ratio of substitution reached by the preceding companies. It reflects the TNK-BP intentions to establish a stable production base. By standards of the U.S. Society of Petroleum Engineers (SPE), TNK-BP substituted 83% of its production volume. As for producing gas, by the methodology of SPE, TNK-BP at present does not have proved reserves in its balance. However, it does not mean that the company has no operations in this respect. It produces approximately 4.5 billion cubic meters of petroleum associated gas on the year-on-year basis and is planning to further develop its gas business. The company’s plans can be fulfilled on a condition that the market of the independent (outside Gazprom’s structure) production and sales of gas is to be expanded. Recently ÒÍÊ-ÂÐ announced that it would set apart its gas projects forming a separate priority direction for them. Viktor Vekselberg was appointed to head this business as the executive director for developing gas projects. TNK-BP considers natural gas production to be a strategically important direction and the company intends to pay more attention to it. Controlling the Kovyktinskoe gas-condensate field in the Irkutsk region (Eastern Siberia) the company has, in fact, the largest gas project in Russia. The explored reserves of gas there amount to 1,900 billion cubic meters. RUSIA PETROLEUM, the license’s owner, has already installed equipment in the field, built a road and constructed power transmission lines. To start the field’s commercial development is the only one thing left. For this purpose TNK-BP and the administration of the Irkutsk region established on a par the East Siberian Gas Company, which in 2005 is expected to invest about $100 million. A trunk gas pipeline over 550 km long to Irkutsl as well as a gas processing complex to provide a wide range of products will be constructed. The first shipments of gas from the new field in the amount of 300 million cubic meters will start coming to the regional market in 2006. By 2007 the volume of supplies will rise up to 2 billion cubic meters. The project is of much interest to China and Korea. That is why its export direction is also considered quite promising. In order to establish cooperation in developing the Kovyktinskoe gas-condensate field commercially and because of the project’s enormous size, TNK-BP intends to invite others to participate in it as well. In particular, Viktor Vekselberg is engaged in negotiations with leaders of Gazprom. One more gas project of TNK-BP is linked to operations of Rospan International, the enterprise, in which the Russian-British company has a 100% stake since 2004. Rospan has been developing deep-lying gas formations in the Novo-Urengoiskoe and Vostochno-Urengoiskoe fields. Their total reserves are evaluated at 950 billion cubic meters of gas and 180 million tons of gas condensate. As is expected, over 3.3 billion of natural gas and 743,000 tons of condensate will be produced in 2005. This more than doubles the indexes of last year. The fields are located close to the pipeline system and that makes it possible to increase shipments of gas to the domestic market. Rospan has elaborated a uniform geological model of the fields, calculated their reserves and now it is drilling producing and exploratory wells. TNK-BP adopted a five-year program of developing Rospan. Having in mind the potential of this enterprise and other resources of petroleum associated gas owned by the company, TNK-BP is planning to raise the year-on-year gas production up to 17 billion cubic meters by 2007. There is another fact that proves the seriousness of the TNK-BP intentions. The company held a open tender on pipe products for its northern projects. In contrast to the previous years, when imported supplies were preferred, contracts are now signed with Russian pipe makers. The experience of cooperation has already been available. The Pipe Metallurgical Company (ÒÌÊ) has shipped to TNK-BP 13,700 tons of spiral pipes with the diameter of 720 mm that have improved operational characteristics and protective three-layer polyethylene coating. They are designed for constructing a 77-km oil pipeline from the group of fields in the Tyumen region, which are being developed by TNK-BP, to the trunk oil pipeline of Transneft JSC. This will make it possible to increase production volumes. ÒÌÊ received this order by winning an open tender with the participation of the major Russian and foreign makers of the large diameter pipes. The active geological prospecting, use of the potential of the national metallurgical industry, search for nonstandard solutions are just the few ways that allow TNK-BP to freely operate in the Russian market, which still makes many foreign investors feel cautious.

The company TNK-BP, which was set up in October 2003 as a result of the merger of ÒÍÊ (Tyumenskaya Oil Company), SEDANCO and Russian assets of ÂÐ, is Russia’s third largest oil company with the personnel numbering nearly 100,000 employees. It is operating in almost all oil- and gas-bearing provinces of Russia.
The independent company DeGolyer and MacNaughton conducted an audit of the TNK-BP geological assets. Under the criteria of the U.S. Securities and Exchange Commission (SEC), TNK-ÂÐ substituted production for new proved reserves by 133%. This corresponds to the annual average coefficient of increment between 25% and 35% in the ratio of substitution reached by the preceding companies. It reflects the TNK-BP intentions to establish a stable production base. By standards of the U.S. Society of Petroleum Engineers (SPE), TNK-BP substituted 83% of its production volume.
As for producing gas, by the methodology of SPE, TNK-BP at present does not have proved reserves in its balance. However, it does not mean that the company has no operations in this respect. It produces approximately 4.5 billion cubic meters of petroleum associated gas on the year-on-year basis and is planning to further develop its gas business. The company’s plans can be fulfilled on a condition that the market of the independent (outside Gazprom’s structure) production and sales of gas is to be expanded. Recently ÒÍÊ-ÂÐ announced that it would set apart its gas projects forming a separate priority direction for them. Viktor Vekselberg was appointed to head this business as the executive director for developing gas projects.
TNK-BP considers natural gas production to be a strategically important direction and the company intends to pay more attention to it. Controlling the Kovyktinskoe gas-condensate field in the Irkutsk region (Eastern Siberia) the company has, in fact, the largest gas project in Russia. The explored reserves of gas there amount to 1,900 billion cubic meters. RUSIA PETROLEUM, the license’s owner, has already installed equipment in the field, built a road and constructed power transmission lines. To start the field’s commercial development is the only one thing left. For this purpose TNK-BP and the administration of the Irkutsk region established on a par the East Siberian Gas Company, which in 2005 is expected to invest about $100 million. A trunk gas pipeline over 550 km long to Irkutsl as well as a gas processing complex to provide a wide range of products will be constructed. The first shipments of gas from the new field in the amount of 300 million cubic meters will start coming to the regional market in 2006. By 2007 the volume of supplies will rise up to 2 billion cubic meters.
The project is of much interest to China and Korea. That is why its export direction is also considered quite promising.
In order to establish cooperation in developing the Kovyktinskoe gas-condensate field commercially and because of the project’s enormous size, TNK-BP intends to invite others to participate in it as well. In particular, Viktor Vekselberg is engaged in negotiations with leaders of Gazprom.
One more gas project of TNK-BP is linked to operations of Rospan International, the enterprise, in which the Russian-British company has a 100% stake since 2004. Rospan has been developing deep-lying gas formations in the Novo-Urengoiskoe and Vostochno-Urengoiskoe fields. Their total reserves are evaluated at 950 billion cubic meters of gas and 180 million tons of gas condensate. As is expected, over 3.3 billion of natural gas and 743,000 tons of condensate will be produced in 2005. This more than doubles the indexes of last year. The fields are located close to the pipeline system and that makes it possible to increase shipments of gas to the domestic market. Rospan has elaborated a uniform geological model of the fields, calculated their reserves and now it is drilling producing and exploratory wells.
TNK-BP adopted a five-year program of developing Rospan. Having in mind the potential of this enterprise and other resources of petroleum associated gas owned by the company, TNK-BP is planning to raise the year-on-year gas production up to 17 billion cubic meters by 2007.
There is another fact that proves the seriousness of the TNK-BP intentions. The company held a open tender on pipe products for its northern projects. In contrast to the previous years, when imported supplies were preferred, contracts are now signed with Russian pipe makers.
The experience of cooperation has already been available. The Pipe Metallurgical Company (ÒÌÊ) has shipped to TNK-BP 13,700 tons of spiral pipes with the diameter of 720 mm that have improved operational characteristics and protective three-layer polyethylene coating. They are designed for constructing a 77-km oil pipeline from the group of fields in the Tyumen region, which are being developed by TNK-BP, to the trunk oil pipeline of Transneft JSC. This will make it possible to increase production volumes. ÒÌÊ received this order by winning an open tender with the participation of the major Russian and foreign makers of the large diameter pipes.
The active geological prospecting, use of the potential of the national metallurgical industry, search for nonstandard solutions are just the few ways that allow TNK-BP to freely operate in the Russian market, which still makes many foreign investors feel cautious.

Reference:
By the data of the Federal Service of State Statistics, in 2004 the year-on-year volume of foreign investments in Russia’s economy went up to $40.5 billion or by 36.4 %. The accumulated foreign capital amounted to $82 billion and was by 43.8 % bigger than the one in 2003. The share of direct and portfolio investments equaled 44.1 % and 1.9 % respectively. All other investments being made on the return basis (credits from international financial organizations, commercial credits, etc.) account for 54 % (51,7 %). The main investor countries are Netherlands, Luxemburg, Germany, Great Britain, the U.S. and France.