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. Last Updated: 07/27/2016

Rosneft Mulls Selling Part of Sakhalin Stake

Apparently unable to meet its investment requirements in the Sakhalin 1 offshore oil project, the state oil company Rosneft is discussing the sale of half of its stake in Sakhalin 1 to companies including LUKoil, Yukos and Gazprom.

Sakhalin 1 is one of only seven projects to have been granted a Production Sharing Agreement. The Exxon Corp. owns 30 percent and directs activity on the project. Sodeco, a consortium of Japanese companies, owns another 30 percent. Rosneft and its daughter company Sakhalinmorneftegaz own the remaining 40 percent.

The governor of the Sakhalin region, Igor Farkhutdinov, told Interfax that Rosneft lacked the capital to finance the project. A spokesman for the state-owned oil company would not comment on the statement or give any other reasons for the planned stock sale.

However, Rosneft could have a problem selling the stake, since oil analysts question whether any of the potential buyers have the money. The partners in Sakhalin 1 will have to invest $13 billion over the life of the project, which would mean a $2.6 billion commitment for anyone buying a 20 percent stake.

Analysts speculated that Exxon and Sodeco might have the right to buy Rosneft's stake before it is offered to other buyers. On Wednesday, an Exxon spokesman said the partners have "some rights in the event that one partner wants to sell" but wouldn't comment further.

The project members intend to finance the majority of the $13 billion using revenue from early oil sales, but even an upfront cash commitment of several hundred million dollars could be difficult for LUKoil, Yukos or Gazprom to meet, said one oil analyst who asked not to be named.

"I'm sure [Yukos] is talking about it, but I don't think there's any way they could get the money to finance the stake," the analyst said, noting that Yukos is already buckling under the weight of a foreign debt totaling an estimated $1 billion to $1.5 billion.

Although Yukos has no offshore drilling experience, it has been keen to join Caspian Sea and now Sakhalin projects in order to expand its oil and gas reserves. A Yukos spokesman would not comment Wednesday on Rosneft naming it as a potential buyer.

"Gazprom and LUKoil are more possible, but they are stretched pretty thin now," the analyst added. Both companies have already committed themselves to massive investment projects difficult to finance in a market of low oil and gas prices and in a domestic financial crisis.

Foreign oilmen working on Sakhalin say Rosneft has been pushing hard to enter additional projects despite its inability to finance its share of initial costs. While it is selling part of its stake in Sakhalin 1, Rosneft has also recently acquired one-third of the Sakhalin 3 project, and is ready to join consortia with the Atlantic Richfield Co. and British Petroleum to bid for the yet unclaimed Sakhalin 4 and 5 projects.

Why it would vacate Sakhalin 1, which boasts a production-sharing agreement, but pursue other Sakhalin projects not yet awarded the coveted PSAs, with their massive tax breaks, is not clear.

Sakhalin 1 has faced some bad news in exploring its oil and gas fields, drilling a dry hole in 1997 on one field thought to have contained substantial oil deposits.

In an Oct. 28 press release, the consortium said the viability of the field, called Arkutun-Dagi, was still under question: "Analysis so far confirms the complexity of the oil reservoirs, and reservoir quality and continuity remain as significant issues."