Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Chevron Teams Up With Gazprom

Gazprom Neft and Chevron said Thursday that they had formed a joint venture to develop western Siberian oil fields, marking the U.S. oil major's first foray into the Russian market amid jitters over the foreign investment climate.

The venture, Severnaya Taiga Neftegaz, was set up in November. Neither Gazprom Neft nor Chevron would say Thursday why they had waited until this week to disclose the deal.

Chevron, one of five foreign firms shut out from the Shtokman field when Gazprom canceled a tender to develop it in October, has long been keen to gain a foothold in the lucrative Russian market.

Gazprom Neft, the oil company formed by state-owned Gazprom after it acquired Sibneft from Roman Abramovich in 2005, lacks the expertise needed to boost lagging oil production, analysts said.

Following a model that has become standard in the country, Gazprom Neft will gain a controlling stake in the venture, while Chevron will provide most of the financing.

Gazprom Neft currently holds 30 percent of the company, but will boost that amount to more than 50 percent, Gazprom Neft said in a statement. Company spokeswoman Natalya Gyalkina declined to provide details on a potential timeline.

Chevron, the second-largest U.S. oil company, will provide most of the capital for Severnaya Taiga Neftegaz.

President Vladimir Putin has made it clear that Russian companies are to hold controlling stakes in all major oil projects. When the shareholders in Sakhalin-2, led by British-Dutch oil major Shell, sold more than 50 percent of shares to Gazprom in December, the country's last wholly foreign owned oil project was put into Russian hands.

"Gazprom Neft and Chevron have been working jointly on evaluating exploration, appraisal and development opportunities in Russia for some time now, and Chevron is please with the progress up to date," Chevron spokesman Sergei Kuznetsov said in e-mailed remarks.

He said that "a few prospective areas" had been identified for joint cooperation, but did not respond to requests for further details.

Severnaya Taiga Neftegaz was formally formed in November, but the idea was first floated in a memorandum of understanding signed between the two companies in April, the Gazprom Neft statement said.

The venture was signed on Nov. 14, a day before long-standing Gazprom Neft president Alexander Ryazanov was fired, Interfax reported late Wednesday.

Analysts dismissed the notion that Ryazanov's firing might be connected to the joint venture, saying he was let go amid attempts to run Gazprom Neft more independently from its gas giant parent.

Severnaya Taiga Neftegaz will be based in Noyabrsk in the Yamal-Nenets autonomous district in western Siberia. The Natural Resources Ministry will hold auctions for nine oil and gas fields in the oil-rich region this year.

"Gazprom has a range of capital expenditure heavy projects going on, and it needs to bring in a partner with deep pockets," said Stephen O'Sullivan, an oil analyst at Deutsche UFG.

Chevron, which has been sparring with the Kremlin over the Caspian Pipeline Consortium in which they both hold large stakes, has been keen to improve relations with its Russian partners, analysts said.

Chevron, which runs the project through its 15 percent stake, has faced a barrage of tax claims and delays in expanding the pipeline, which connects oil fields in Kazakhstan to the Russian Black Sea port of Novorossiisk. It is the only oil pipeline running through Russia that is not controlled by pipeline monopoly Transneft.

Andrew Somers, president of the American Chamber of Commerce, said the deal was a "positive signal that significant energy transactions can still take place between the two countries," referring to Russia and the United States.

Announcement of the joint venture came just days after U.S. oil major ConocoPhillips boosted its stake in LUKoil, the country's largest oil producer, to 20 percent, he noted.

The long-awaited signing in November of a bilateral deal on Russia's accession to the World Trade Organization helped Chevron's cause, Somers added.

Analysts said a deal with Gazprom could put Chevron in a prime position to help develop Shtokman, the massive Arctic oil and gas field, if Gazprom reopens the project to foreign participation.

"Gazprom has been successful in beefing up its reserve base, and now it needs to start production," said Valery Nesterov, an oil and gas analyst at Troika Dialog.

Gazprom Neft hopes to more than double its oil output in coming years, he added. "This is a difficult task. Without technical and financial support from a Western company, this would probably be unachievable."

Gazprom Neft's production has been poor in recent years, but it remains the country's fifth-largest oil company by market capitalization. With proven reserves of 4.5 billion barrels, it has been producing just over 30 million tons of oil per year.

Some analysts have blamed Gazprom's notoriously inefficient management style, while others have speculated that Abramovich is to blame for the company's low production, accusing the billionaire of bleeding Sibneft's fields to boost its market value and fetch an inflated sale price.