Gazprom, OMV to swap upstream assets
VIENNA, Austria (Bloomberg) -- Russia’s Gazprom PJSC, seeking to defend its share in the European energy market, agreed to swap upstream assets with OMV AG, the Austrian oil and gas company trying to lower production costs amid a slump in oil prices.
OMV is offering the Russian state-run group a participation in its Norwegian offshore assets, in exchange for a minority stake in two blocks of a Gazprom gas field in northern Siberia in the deal. The two companies also agreed on a crude supply contract for OMV’s refinery in Schwechat, Austria, and on an exchange of know-how, according to a joint statement on Friday.
“We are both benefiting,” OMV CEO Rainer Seele said at a briefing in St. Petersburg, Russia, after signing the deal. The deal may be completed later this year, Gazprom CEO Alexey Miller said at the same event, which was also attended by Austrian Finance Minister Hans Joerg Schelling, Russian Energy Minister Alexander Novak and Suhail Al Mazrouei, the energy minister of the United Arab Emirates, which own a stake in OMV.
Russia, which relies on oil and gas for about 40% of its budget revenue, has been betting on energy cooperation with its oldest partners in Western Europe, mainly Germany and Austria, amid international sanctions over Ukraine. OMV in turn plans to slash costs as low crude prices make its costly North Sea production unprofitable, partly by tapping into its 48-year-old ties to Russia.
Pipeline Criticism
Seele, who has been working in companies cooperating with Gazprom for more than two decades, said last year Russia would make the Vienna-based company fit for the future. Production costs in Siberia are about a fifth of what OMV is spending in the North Sea, he said.
When it signed the first contract on the asset swap in September, OMV also agreed to take a 10% stake in a 10-billion euro Gazprom-led gas pipeline project across the Baltic Sea. The gas link, known as Nord Stream 2, is planned to start in 2019 and has been facing criticism from eastern members of the European Union. Germany’s BASF SE, the owner of Seele’s previous employer, is another investor in Nord Stream and the gas fields.
Gazprom still has to analyze the assets OMV offered in exchange for the gas field stakes, Seele said. He declined to elaborate. OMV paid $2.65 billion in 2013 for stakes in four North Sea oil and gas fields and options on 11 exploration licenses.
While Gazprom isn’t sharing conventional gas production at the Urengoyskoye field, discovered back in 1966 and once the world’s largest gas deposit, it invited partners to tap hardly-accessible Achimov layers at the deposit with the fuel pumped from as deep as 4,000 m (13,124 ft) below the surface.
The two blocks offered to OMV, in which BASF holds 25.01%, are expected to start production in 2017, Gazprom said in a March memorandum for Eurobond. OMV may obtain 24.98% in the venture. Closure of the agreement is pending a final decision over which OMV assets Gazprom will get in return, which could be reached by July.
The blocks offered to OMV will eventually produce 14 Bcm of gas per year, according to Miller. A separate Achimov venture set up by Gazprom and BASF in 2003, when Seele ran the German company’s unit Wintershall AG, produced about 5 Bcm of gas last year which is close to Russia’s annual supplies to Austria.
