TPT May 2008

Oil & Gas News

Russian oil and gas companies protest rise in the price of steel Russia’s Federal Anti-Monopoly Service will investigate OAO Severstal, the country’s biggest steel maker, and three other firms after receiving complaints about higher prices for steel slated for use in oil pipes. As reported by Maria Kolesnikova on Bloomberg.com , the antitrust watchdog said in a statement that the oil producer OAO Surgutneftegaz had joined OAO Gazpromneft, the oil unit of the world’s largest gas company, in filing a complaint over the 1 April hike in steel prices ( ‘Russia to probe steel makers over prices for oil pipes,’ 3 April). OAO Magnitogorsk Iron & Steel, OAO Novolipetsk Steel, and OAO Ural Steel, part of the Metalloinvest Holding Co, are the other steel makers to be investigated, the regulator said. Ms Kolesnikova wrote, “Record energy prices in the past year have encouraged producers to probe deeper for reserves and build pipelines. Flat hot-rolled steel, which is used in products including pipes, averaged $550 a ton in 2007, 21 per cent more than a year earlier, Magnitogorsk said in a statement in January. Prices for pipes produced by the steel maker averaged 22 per cent higher last year.” The investigation is ‘slightly negative’ for the steel makers, UniCredit Aton analysts were reported to have said in a 3 April note to investors. According to these industry observers, materials used to make pipes for the oil and gas industry do not represent ‘a significant portion’ of steel makers’ sales. Indeed, Novolipetsk – which alone was willing to provide Bloomberg with a comment – said the antitrust agency closed a similar probe into its affairs four years ago because the company’s output of steel for pipes was insignificant. Declaring that it sells steel at market prices in line with Russian regulations, Novolipetsk pledged cooperation with the authorities. Moscow-based Interfax, the nongovernmental news agency, reported that the watchdog hoped to complete its investigation by 1 May. Total, of France, acquires a Chinese investor A Chinese public fund has been gradually building a stake in the French oil major Total SA since before the end of 2007. While confirming this, Paris-based Total on 3 April declined to say whether or not the fund is China Investment Corporation. This is the $200 billion sovereign wealth fund that has taken stakes in the American private equity firm Blackstone Group and the investment bank Morgan Stanley, only to sustain losses on both endeavours. As reported by the financial information firm Dow Jones, a spokeswoman for Total said it would neither name its Chinese investor nor disclose the size of the stake. She noted, however, that under French rules a stake higher than 5 per cent would oblige the fund to make the size of its holding public through a filing with the market regulator ( ‘China building stake in French oil company,’ 4 April). A UBS analyst told Dow Jones that it made ‘a whole lot of sense’ for the Chinese fund to build a stake in Total, whose assets he

considers undervalued. This source observed that sovereign funds are generally more willing than Western equity markets to take a longer-term view of value. ■ In other news of Total, on 1 April the French integrated oil and gas company announced that its wholly owned subsidiary Total E&P USA Inc was highest bidder for the leasehold of 13 blocks in the Central Gulf of Mexico. Situated in deepwater (1,500m to 2,000m) and close to Total’s wholly owned blocks in this area, each of 13 blocks in Lease Sale 206 is approximately 25km 2 in area. The lease period for these exploration blocks is 10 years. Total has been active in exploration and production in the US since 1957. “We are seeing two projects in Latin America and looking at a majority stake in one of them, and will be the operator in at least one of them,” Atul Chandra, president of the international business unit of Reliance Industries Ltd, told Bloomberg News in Mumbai ( ‘Reliance may invest in two Latin American oil areas,’ 5 April). Bloomberg ’s Archana Chaudhary observed that India’s highest- valued company needs to expand overseas to offset the impact of state controls on domestic gas, diesel, and petrol prices. Already the largest non-state refiner in India, the Reliance Petroleum Ltd unit will complete the world’s largest refinery complex this year, with nearly all the output earmarked for export. The company’s plans to explore for oil and gas in Latin America, together with its interest in possibly starting drilling services, are seen as advancing chairman Mukesh Ambani’s aim of building a global energy business. Mr Ambani said last October that Reliance plans to produce 80 million cubic metres of gas a day from the Dhirubhai 1 and 3 fields within the first year of operations, doubling India’s output. Oil output from the area is forecast to peak at 40,000 barrels a day. Reliance, which plans to start pumping oil and gas from its Krishna Godavari basin area later this year, is also considering building and owning rigs after having experienced delays in the delivery of essential drilling equipment. “We are certainly considering entering the oilfield services business,” Mr Chandra told Bloomberg . “We are looking at the end of this fiscal or the beginning of next fiscal [but] haven’t started talks with partners as yet.” Elsewhere in oil and gas . . . ■ Opposition from Kurdistan, which fears losing control over the oil riches in that semiautonomous northern region, has kept a bill on regulation of Iraq’s oil industry stalled in parliament since February 2007. On 5 April, however, a senior Iraqi lawmaker said a committee is working on two oil-related draft bills, one to re-establish the state-run oil company and another to fight oil smuggling. The legislation to restore the Iraqi National Oil Co, at least, was set for presentation to parliament soon. The measure is part of a package that includes legislation to distribute revenues among Sunni, Shiite, and Kurdish regions India’s biggest non-state refiner Reliance casts its eye far afield

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M ay 2008

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