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. Last Updated: 07/27/2016

Statoil Picked as Shtokman Partner

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Gazprom on Thursday signed a deal with Norway's StatoilHydro to develop the Shtokman gas field, dashing U.S. hopes of getting a stake in the giant Arctic project.

StatoilHydro will get a 24 percent stake in the field's operating company, joining France's Total, which was given a 25 percent stake in July. Gazprom will retain majority control of the company and hold 100 percent ownership of the field itself.

"We have giant reserves of gas in the Barents Sea, while our partners from Norway have good experience in production and transportation of gas in harsh Arctic conditions," Gazprom CEO Alexei Miller said in a statement.

State-run Gazprom shocked observers a year ago when it said it would develop Shtokman on its own, amid increasing signs of energy nationalism in the Kremlin's policy. It has since backtracked, allowing in foreigners to develop a project seen as one of the world's most challenging.

U.S. oil major ConocoPhillips, which had been in talks for a stake in the project, conceded defeat Thursday.

"ConocoPhillips is disappointed, but we wish Gazprom and its new partners well," spokeswoman Janet Grothe said in an e-mailed comment. "We will continue exploring opportunities with Gazprom and others that will enable us to provide a long-term supply of natural gas to the U.S. and EU markets."

StatoilHydro, which was formally created Oct. 1 through the merger of Statoil and Norsk Hydro, was long expected to get a stake in Shtokman, owing to its experience in similarly harsh conditions in the Barents and North seas.

Indicating the political nature of the decision, the Kremlin was first to announce that a deal had been struck. President Vladimir Putin and Norwegian Prime Minister Jens Stoltenberg discussed the deal in a telephone conversation early Thursday, the Kremlin said in a statement.

"It was a kind of political decision announced to the country," Kremlin spokesman Dmitry Peskov said. "The company was handling negotiations and only after that did the leaders hold a telephone conversation."

Analysts welcomed the deal, saying debt-laden Gazprom lacked the technology to develop the field without foreign partners. With an estimated 3.7 trillion cubic meters of gas in reserves, Shtokman is believed to be the world's largest undeveloped offshore gas field and is set to become a key supplier of liquefied natural gas.

"They needed someone with experience and financing for this project, and StatoilHydro fits the bill," said Alexander Burgansky, an analyst at Renaissance Capital.

Neither Gazprom nor StatoilHydro released details of the agreement, but analysts said a deal similar to the one inked by Total should allow the Norwegian firm to book some of the field's reserves. Total will be able to book 25 percent of the field's reserves, equivalent to its stake in the operating company, which is responsible for planning, financing and building the project's first phase.

That is equivalent to nearly 1 billion barrels of oil equivalent, Total CEO Christophe de Margerie said last month.

"Definitely reserves are bookable," he told the Financial Times in an interview. "It has all the merit of a contract which can bring reserves to be booked."

He said the firm would invest at least $10 billion in the project, which has been estimated to cost a total of $20 billion.

Final investment decisions are to be made in the second half of 2009, the StatoilHydro statement said.

The equity stakes in the operating company, Shtokman Development Company, will also allow the firms to own the field's infrastructure for 25 years from the start of production.

Gazprom has said it plans to produce 23.7 bcm of gas from Shtokman for pipelines to Europe by 2013, with LNG production likely aimed at the North American market starting the next year.

With 49 percent of the equity doled out, the competition to develop the field is closed, as Gazprom has stated that it will keep a majority stake in the project.