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. Last Updated: 07/27/2016

Slavneft Sets Sites On Iraq, Ukraine

With stiff competition domestically, Slavneft is looking to expand its markets in Ukraine as well as increase extraction through a foray into Iraq.

Slavneft is Russia's eighth-largest oil company, and its oil fields and reserves are some of the oldest in production today. To work more effectively on behalf of its shareholders, Slavneft's board of directors on March 15 voted to approve a five-year strategic plan of development, top company officials said Wednesday.

"Our most important goal is to simply extract more oil, because we have very poor reserve levels," said Slavneft vice president Andrei Shtorkh.

The oil company's major shareholders are the Property Ministry with 55 percent, the State Property Fund with 20 percent and the Property Ministry of Belarus with 10.8 percent. In addition, 12 percent is controlled by companies affiliated with the Tyumen Oil Co., or TNK.

Ukraine is the clearest target on Slavneft's radar screen, and in the next several days, Slavneft is set to sign a contract with Ukraine that would give the company its first distribution network in the former Soviet state.

"We are putting more effort into the market so we don't lose it," said Anatoly Ternavsky, Slavneft vice president and one of the main delegates in negotiations with Ukraine. "When [Slavneft president Mikhail] Gutseriyev went to see [Ukraine president Leonid] Kuchma last year, we took it as a positive sign that we would have a presence on the market."

The Ukrainian market is attractive because oil prices are higher and because it is a fragmented industry that is dominated by small players, said Steven Dashevsky, an oil and gas analyst with Aton brokerage.

"It's an interesting plan, but to say that it's the end-all-be-all is an exaggeration," Dashevsky said. "Success will depend a lot on intergovernmental relations and the influence of local businessmen. It is unlikely that they will be happy about Russian companies taking market share away from them."

Thirty percent of Slavneft's production goes to Ukraine, but the company only acts as a wholesaler, Ternavsky said. To better penetrate the market, Slavneft hopes to acquire 40 gas stations and distribution centers around Kiev and Dnipropetrovsk.

Slavneft is the only Russian company planning to extract in Iraq, with which it began talks with last year about stepping up its oil activities. Iraq's oil industry has suffered since the United Nations imposed sanctions after the invasion of Kuwait in 1990.

Slavneft received a 6 million-barrel share in the UN's oil-for-food program and is looking to strike an agreement with the Iraqis to develop the Subba deposit, which has reserves of more than 770 million barrels of oil.

"The contract should be signed any day now," said Shtorkh.

These expansion plans are based on Slavneft's strategic plan to increase oil production 56 percent by 2005 to 138 million barrels. Management said this would be done by increasing the amount of oil extractable from existing fields and by acquiring new exploration areas.

These new investments will be financed by $270 million to $280 million in new loans from a slew of multinational banks. The loans will be underwritten by future oil exports.