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. Last Updated: 07/27/2016

Shtokman Set for Some Outside Help

bloombergMedvedev, left, talking to EU Energy Commissioner Andris Piebalgs, said Gazprom would take on foreign partners.
Gazprom is on the verge of signing a deal with one or more of the international oil majors that was shut out of competition to develop the giant Shtokman gas field last year, deputy CEO Alexander Medvedev said in an interview published Monday.

The state-run gas giant is in talks with France's Total, ConocoPhillips of the United States, and Norway's soon-to-be-merged Statoil and Norsk Hydro, Medvedev told the Financial Times in London. A deal to develop Shtokman was "very close," he said.

A potential deal would see the international oil majors buying stakes in the company due to operate Shtokman, Medvedev said. Gazprom would maintain sole ownership of Sevmorneftegaz, which holds the field's development license.

The new model being developed would "allow foreign partners to share in the economic benefits of the project, share the management, and take on a share of the industrial, commercial and financial risks," Medvedev said.

Gazprom stunned observers in October when it announced that, after years of negotiations with five international oil majors, it would hold 100 percent ownership of the license and develop the field alone.

Analysts were immediately skeptical of the company's ability to develop Shtokman on its own. The vast field, estimated to hold 3.7 trillion cubic meters of gas, lies under the Barents Sea deep inside the Arctic circle, making for very difficult conditions.

Gazprom has been sending signals since early this year that it would seek to bring international oil majors, and their key technologies, into the project, estimated to cost around $30 billion. It earlier offered to bring foreign companies in as contractors, but that move was rejected by all companies involved since it would not have allowed them to book the field's reserves.

In addition to Total, ConocoPhillips, Statoil and Norsk Hydro, the shortlist to develop Shtokman had initially included Chevron. The U.S. firm said in March it was no longer interested in participating.

Spokespeople for Norsk Hydro, Statoil, Total and ConocoPhillips confirmed talks were ongoing, but declined to provide further details.

"We're still interested and are holding normal talks," said Kama Holte Strand, a Norsk Hydro spokeswoman, by telephone from Oslo. "It is up to Gazprom, so we are awaiting their official statement."

A Gazprom spokesman, who cited company policy in requesting anonymity, said an official statement would be made once the deal was finalized.

Gazprom has said it hopes to have the field operational by 2013, producing 71 billion cubic meters to 94 bcm per year. Medvedev said it hoped to begin shipments of liquefied natural gas from the field by 2014.

Alex Brooks, an oil and gas analyst with UBS in London, said the timetable was unrealistic, even with the addition of a foreign partner.

"It's not a question of competence or financing, the time is simply too tight," he said.

Half of the field's gas could be converted to LNG, with the other half shipped through pipelines to Europe, deputy CEO Alexander Ananenkov said last month.

Gazprom currently supplies one-quarter of Europe's gas imports, an amount due to grow quickly as demand across the continent is expected to grow drastically by 2020.