3 Jvs between bp and rosneft – bp p.l.c. (nyse bp) seeking alpha d cypha electricity


BP plc ( BP) is a big player in Russia’s oil & gas space as it owns 19.75% of Rosneft ( OTCPK:RNFTF). However, that isn’t BP plc’s only major investment in the country. While Western sanctions remain a major ongoing concern for BP plc, there are certain joint ventures that have been allowed to proceed. Let’s take a look at three of BP’s ventures in Russia, all of which are partnerships with Rosneft. First JV

In 2015, BP plc and Rosneft announced that the British firm was going to buy a fifth of the Taas-Yuryakh Neftegazodobycha LLC JV, abbreviated as the Taas JV. BP ended up paying Rosneft around $750 million for that stake, which covers the Srednebotuobinskoye oil and gas condensate field. Rosneft is the operator of the JV with a 50.1% stake, BP has its 20% interest, and a consortium of Indian energy firms owns the remaining interest.

Located in Eastern Siberia, the Srednebotuobinskoye field was first discovered way back in 1970. Due to the geological complexities of the find, including potential gas coning issues which negatively impacts oil production, it wasn’t until October 2013 that the field started producing. A horizontal well development strategy is being implemented to extract extensive hydrocarbon resources from the Srednebotuobinskoye field, which spans across the C1 and C2 license areas.

Within that region, Rosneft noted there were 162 million metric tons of recoverable oil & condensate and 182 billion cubic meters of recoverable gas as of early 2017 (roughly on par with BP’s estimates given two years earlier). Converted to more conventional figures, that indicates there are over 1.1 billion barrels of recoverable oil & condensate and 6.4 trillion cubic feet of recoverable natural gas in the field. To be fair, it is reasonable to assume a meaningful chunk of that won’t be recovered given the engineering complexities around extracting these resources. However, the field is large enough to support significant production streams for some time.

Since coming online in late 2013, the Taas JV had ramped up production at Srednebotuobinskoye to 22,000 gross barrels of oil per day by early 2017. BP expects the field to pump out 25,000 bo/d gross on average this year, which will steadily ramp up to 100,000 bo/d gross by 2021. It appears that only the oil & condensate (which is a very light form of crude) is being commercialized as things stand today (no mention of the field’s dry gas output).

Crude & condensate extracted from Srednebotuobinskoye is being shipped along a 168-kilometer (104 miles) long oil pipeline that the Taas JV built to connect to the massive Eastern Siberia Pacific Ocean pipeline network. The EPSO system runs for 4,188 kilometers (2,555 miles) and gives Russian oil producers access to key Asian markets via land transfers and marine exports. Having access to the Pacific Ocean marine terminal at Kozmino Bay in Eastern Russia allows those oil volumes to reach other international buyers as well.

Phase 1 of the ESPO was completed in 2009 after construction began in 2006, which was followed by the completion of Phase 2 in late 2012. In late 2014, three new oil pumping stations were completed to enhance the system’s transportation capacity and support rising volumes from the Srednebotuobinskoye field. Investments in storage facilities were also made.

Management considers this one of BP’s more important upstream ventures, probably due to the long-term growth potential future development activities offer. In the future, it is possible that the Taas JV will be interested in better commercializing the gas resources situated in the Srednebotuobinskoye field through exports to China or elsewhere. In order to make such a gas export pipeline project economically viable, the Russian government could encourage state-run energy firms to support such an endeavor and potentially connect other gas supplies to the system.

A year after BP bought into the Taas venture, the firm entered into another JV with Rosneft, this time covering an exploration-heavy endeavor in Western Siberia and the Yenisey-Khatanga basins. The Yermak Neftegaz LLC is 51% owned and operated by Rosneft, with BP owning the remaining interest. In 2016, BP committed $300 million to the Yermak JV to cover future exploration and appraisal activities.

For starters, the venture is primarily focused on appraising the Baikalovskiy field that was located by Rosneft back in 2009. Due to the need for foreign expertise and to reduce project risk, Rosneft turned to BP. While the drilling is being done by a subsidiary of Rosneft, one would assume that BP is offering plenty of technical advice that still complies with ongoing Western sanctions.

Longer term, the Yermark JV has mapped out “two Areas of Mutual Interest (AMIs) in the West Siberian and Yenisey-Khatanga basins covering a combined area of about 260,000 square kilometers” that are prime exploration opportunities. For BP, the Yermak JV is all about how the firm can keep growing when the mid-to-late 2020s come rolling around. This isn’t a short-term opportunity. It will take time and probably some changes on the geopolitical arena as well (which is outside the scope of this piece) before even the Baikalovskiy field is operational (assuming appraisal activities go well). Yet another one

Finally, a third joint venture was signed between Rosneft and BP near the end of last year. This deal covered the “Kharampurskoe and Festivalnoye licence areas of the Yamalo-Nenets Autonomous Okrug in northern Russia, with total geological reserves exceeding 880 bcm of gas.” Like always, Rosneft will be the operator with a 51% stake while BP will own the remaining 49% interest. That deal is expected to be finalized this year, with the main focus being exploiting resources within the Turonian deposit. Final thoughts

BP plc’s biggest asset in Russia is obviously its equity stake in Rosneft, and that can cloud over its other sources of upside in the nation. Western sanctions have muddied the waters a bit, it isn’t certain where BP plc will be stymied and where it will be able to continue moving forward. These are three important JVs to keep an eye on as they may have a significant impact on BP plc’s 2020s growth ambitions. Thanks for reading.