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. Last Updated: 07/27/2016

Yukos, CNPC Strike a $150Bln Deal

Yukos clinched a $150 billion deal with Chinese state-owned oil company CNPC on Wednesday to ship 700 million tons of crude to China over the next 25 years.

The agreement signals the next step toward the construction of a 2,400-kilometer pipeline from the east Siberian city of Angarsk to Daqing in northern China. The construction of the $2.5 billion pipeline -- which is expected to be finished in 2005 -- will be jointly overseen by Russian state-owned pipeline monopoly Transneft and CNPC, or China National Petroleum Corp.

The pipeline will carry 20 million tons of crude annually through 2010 and 30 million tons per year after that.

The contract was reached a day after President Vladimir Putin and visiting Chinese President Hu Jintao signed a declaration to increase cooperation between their two countries in a number of areas, including energy. The declaration named the Angarsk-Daqing pipeline as a cornerstone for future joint energy projects.

"This is the biggest deal signed between China and Russia in recent years," CNPC president Ma Fucai told reporters at the signing ceremony.

Yukos chief executive Mikhail Khodorkovsky said Russia will receive $60 billion in taxes and other revenues during the project's 25-year lifespan.

"When it is fully operational, the pipeline will provide about 10 percent of China's demand for oil," Khodorkovsky said.

He said the construction of the new export route should kick-start exploration for more oil reserves in eastern Siberia.

"If we work well and discover new fields, we will be able to extend the pipeline further to the east," Khodorkovsky said, referring to the Far East port of Nakhodka.

The government in recent months had been debating whether to go ahead with an Angarsk-Nakhodka pipeline or an Angarsk-Daqing pipeline.

Transneft officials said Wednesday that they intended to meet the 2005 deadline for the Angarsk-Daqing pipeline.

"Our specialists will do their best to set an example with this project," Transneft vice president Sergei Ter-Sarkisyants said.

It was unclear Wednesday whether Yukos would be the sole supplier of crude to China. By law, oil companies must be allowed equal access to pipelines. A Yukos source said no offers have been made yet to join the project. Participants have to help foot the $2.5 billion construction bill.

"The signing of this deal puts Yukos at the front of the line to benefit from the project," said Timirbulat Karimov, oil and gas analyst with the Aton brokerage.

He agreed that the pipeline probably would promote further exploration and development efforts in eastern Siberia, particularly in light of plans to increase exports to the West.

The Cabinet approved a broad energy strategy last week that envisions the development of a number of export routes in the coming years. Among them is the Baltic Pipeline System, whose capacity is to swell from the current 12 million tons per year to 50 million, and a pipeline to Murmansk.

Yukos and CNPC on Wednesday also signed a $1.1 billion agreement to ship 6 million tons of crude to China by rail over the next three years. The agreement effectively doubles the volume Yukos currently supplies to CNPC.

Meanwhile, the CNPC president met with Gazprom chief executive Alexei Miller on Wednesday to discuss joint projects including the construction of a Russia-China-Korea natural gas pipeline from the east Siberian Kovykta field. The field, controlled by BP and Tyumen Oil Co., is estimated to have 1.9 trillion cubic meters of natural gas.