Russia's Rosneft eyes MidEast after UAE gas deal

DUBAI Sat Jun 5, 2010 3:26pm IST

A general view shows an oil refinery of Russian state-controlled oil giant Rosneft at night near the Siberian town of Strezhevoy in the Tomsk region October 17, 2007. REUTERS/Mikhail Voskresensky/Files

A general view shows an oil refinery of Russian state-controlled oil giant Rosneft at night near the Siberian town of Strezhevoy in the Tomsk region October 17, 2007.

Credit: Reuters/Mikhail Voskresensky/Files

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DUBAI (Reuters) - The Kremlin's oil arm aims to expand its presence in the Middle East, including Iraq, after signing up to a ground-breaking gas project with a United Arab Emirates energy firm, Russia's top energy official said.

Rosneft will join Crescent Petroleum in a gas concession in the emirate of Sharjah, Crescent said on Saturday, in the first Middle Eastern foray for the Russian firm

The pair will consider more joint ventures in the Middle East. "If there is a proposal in .... Iraq, we will definitely study it," Russia's Deputy Prime Minister Igor Sechin told reporters on Saturday.

"This project is a pilot and we will have opportunities in the Russian Federation, the Middle East and the rest of the world ... There is no doubt it is a historic moment for Russian oilers starting their operations in the Middle East."

State-run Rosneft pumps over a fifth of Russia's oil and is the largest oil company in the world's top crude producer. Crescent is a privately-held energy firm based in Sharjah, in the north of the UAE.

The deal is the first between the two companies after they signed an agreement in mid-May to work on joint ventures in the Middle East and North Africa region.

Rosneft will farm into Crescent's onshore gas concession in Sharjah, Crescent said in a statement. The companies would drill two wells in the 1,243 square kilometre concession with an initial investment of 220 million dirhams ($59.9 million).

Rosneft will receive a 49 percent stake in the concession, while Crescent will retain 51 percent, Crescent said. Initial investment will be split along the same lines, Rosneft's Middle East representative Timur Rustamov told Reuters.

Crescent has held the 25-year gas concession in Sharjah since February 2008.

There is currently no production from the concession.

"We are targeting gas reserves of approximately 2.4 trillion cubic feet and gas condensate of approximately 117 million barrels," Crescent Petroleum Executive Director Badr Jafar told Reuters.

These are reserves that Crescent hopes to find in the concession but the firm would have a more accurate idea after the first two wells are drilled, Badr said.

The number of development wells that Rosneft and Crescent would drill would depend on the results from the first two wells, Badr added.

Gas produced would supply the UAE's grid, while the condensates could be exported to international markets, Crescent said. Condensate is light oil produced as a by-product of gas.

The UAE is the world's third-largest oil exporter. Most of its crude and gas production and reserves are in the capital emirate of Abu Dhabi, with much smaller reserves in the northern emirates.

The partnership aims to capitalise on Rosneft's technical expertise and financial strength and Crescent's international operating experience and knowledge of the MENA region.

DRILLING BEGINS

Drilling began at the first of the two wells in Sharjah on Saturday. Rosneft and Crescent would being work on the second well in about three months, Crescent's director of exploration and production Abdulla al-Qadi said.

Qadi said that previous drilling in Sharjah had shown oil finds and so there was a possibility of finding oil with the new wells but the priority was on gas.

"We look forward to achieving many more opportunities together with Crescent Petroleum in the Middle East and North Africa Region," said Rosneft chief Sergei Bogdanchikov in the statement.

Rosneft is working in upstream projects in Kazakhstan, Venezuela and Algeria.

Rosneft has big expansion plans but has so far refrained from aggressive purchases abroad due to what analysts describe as the company's concerns about potential legal suits it could face from former shareholders and managers of defunct oil firm YUKOS.

(Writing by Jason Benham; Editing by Sugita Katyal, John Stonestreet)

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