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. Last Updated: 07/27/2016

Gazprom Approaches Shtokman Bidders

Gazprom has offered possible contract work on its huge Shtokman project to the five companies that previously bid unsuccessfully for a stake in the scheme, it said Friday.

"Gazprom has sent a letter to the five companies on the Shtokman shortlist with an offer of possibly taking part as contractors," a Gazprom spokesman said. "Talks with the five companies will start in February."

Last year, Gazprom stunned the five hopefuls -- French oil major Total, Norway's Statoil and Norsk Hydro, and U.S. majors ConocoPhillips and Chevron -- by scrapping a yearlong bidding process and saying it would develop Shtokman without any foreign equity partners.

Energy analysts were dismayed by the move, saying Gazprom would struggle to complete the $20 billion project, under the stormy and iceberg-strewn Barents Sea, without foreign know-how.

After ditching the shortlist, Gazprom said it would use foreign contractors but would not offer them any equity in the project, which envisions piping some Shtokman gas to Europe and liquifying the rest for shipment to the United States. "We will continue to be open towards cooperation on the project if the Russians invite this cooperation," Norsk Hydro spokesman Bjorn Sverdrup said, while declining to speculate on whether his company would come into the project as contractors.

"We are, of course, interested in the Shtokman project if an equity position is offered to the company," Statoil spokesman Havor Engebretsen said.

Both Norsk Hydro and Statoil, which have deep-water drilling and logistics experience in the Arctic, have said they still see opportunities in Russia despite the Shtokman snub.

In December, Hydro CEO Eivind Reiten said he had "modest" expectations for a deal soon, and added: "We do not exclude any type [of working agreement], but for us to work on a basis where we do not get an ownership stake in the resources is more challenging, because that is a model we are not used to."

Chevron, Total and ConocoPhillips could not be reached for comment Friday.

Gazprom CEO Alexei Miller said Oct. 9 that the priority for Shtokman gas was filling a new pipeline under the Baltic Sea to Germany. The field, located 500 kilometers offshore in deep Arctic waters, poses new technological challenges to Gazprom, said Stephen O'Sullivan, an oil and gas analyst at Deutsche UFG in Moscow.

"Gazprom will need to tie up with someone to develop Shtokman,'' said O'Sullivan. "There's a constant need to replace declining production."

A liquefied natural gas plant, capable of supplying Shtokman gas to the United States by tanker, is also under consideration. Gazprom has no experience developing LNG.

The five companies may accept the chance to work on Shtokman, said Valery Nesterov, an oil and gas analyst at Troika Dialog in Moscow. Shell, now a Gazprom partner in Sakhalin, may also join, he said.

"Oil majors aren't so interested in making money this way, they're interested in stakes,'' Nesterov said by telephone. "If they have no choice, they'll probably agree to be contractors.''

Shtokman, 550 kilometers from Russia and Norway, has reserves of more than 3.7 trillion cubic meters of gas.

(Reuters, Bloomberg, MT)