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. Last Updated: 07/27/2016

Ministry Mulls Backing Northgas

The Natural Resources Ministry said Monday it might support mid-sized gas firm Northgas in a dispute with Gazprom, which last week claimed victory in taking back a Northgas gas deposit.

Nevertheless, analysts predicted that Gazprom, which holds a monopoly on gas pipelines, distribution and export, was poised to become the winner in the years-old dispute over a Siberian field as it exerts huge pressure to regain control over big reserves and substantial production to support flagging gas output.

Gazprom said Friday that a Moscow court had annulled Northgas' license to develop the North-Urengoi field, which would now return to the gas monopoly for the first time since 1993.

Gazprom had lost similar suits in the past, and Northgas said Monday it would appeal the latest ruling within one month or claim $160 million in losses, equal to its previous investment in the field, from the Natural Resources Ministry.

The ministry said on Monday it might support Northgas after it obtained a copy of the latest court ruling.

"The ministry's lawyers reserve the right to appeal the ruling," the statement said.

Gazprom has clawed back more than 1 trillion cubic meters of reserves and billions of cubic meters of annual gas production from firms such as Itera over the past years.

The giant gas producer claims that those deposits had been unfairly distributed to insiders under previous Gazprom management in the mid-1990s and says that Northgas' case is another case of past asset redistributions.

Northgas' assets would add 4 billion cubic meters of annual output to production of Gazprom -- which, as the world's largest gas firm, currently extracts 545 bcm per year.

"We believe the likelihood of an unfavorable outcome for Northgas is very high as Gazprom is determined to win the case," Raiffeisenbank said in a note.

"A license withdrawal would present a serious threat to Northgas' creditworthiness, given that the North-Urengoi field is the company's main upstream unit. We see a high chance that Northgas will lose its license before November 2005, when the firm is due to repay its bonds," the bank said.

The price of Northgas' 2.1 billion ruble ($75.3 million) bond slumped to 85 percent of par on Monday.

Northgas was set up in 1993 to develop the North-Urengoi deposit with reserves of 353 billion cubic meters -- enough to meet German gas consumption for four years. It also has 62 million tons of gas condensate reserves. The firm values its reserves at $1.4 billion.

The venture was initially controlled by a Gazprom unit, but the control later shifted to Farco Group, which is owned by Northgas' management.