Novatek enters offshore Arctic
Russia's Novatek is creating a joint venture with Gazprom Neft to explore for oil and gas in the Chukchi Sea, marking its entry into Russia's offshore Arctic, the companies said on June 4.
Under the partnership, agreed at the St Petersburg International Economic Forum, Gazprom Neft will transfer a 49% interest in the Severo-Vrangelevsky (North-Vrangelevsky) block, which spans 117,620 km2 in waters 20-90 m deep off the Chukotka Peninsula.
Gazprom Neft said it had undertaken large-scale seismic surveys at the remote area in 2018-2019. While it did not disclose resource estimates, the company said the block had high prospects. Neither partner said when they expected to drill their first well at the site.
"The Russian Arctic Shelf has enormous – although yet not fully assessed – resource potential. But exploring and developing it demands major investment, which is why joint ventures are among the most effective models for offshore operations," Gazprom Neft chairman Alexander Dyukov commented. "Partnerships consolidate not just financial resources, but also the industry expertise and the material, human and logistical resources of the parties."
Gazprom Neft acquired rights to North-Vrangelevsky in 2013, and earlier it had been seeking a foreign partner to obtain the technology, know-how and financing necessary to move the project forward. It initially considered Shell, its partner at Salym Petroleum, but international sanctions introduced in 2014 restricted Western countries from providing any assistance to offshore Arctic projects in Russia, making the partnership impossible.
Novatek has limited experience of offshore exploration, although it has proven itself a capable onshore Arctic operator on the Yamal Peninsula. It will also be able to help shoulder drilling costs, and its experience of gas production and liquefaction will come in handy in the event of a discovery.
Novatek will become the first private Russian company to gain rights to offshore Arctic oil and gas, which Moscow views as strategically valuable. Under Russian law, only state-owned companies can have offshore licences in the area, and while there is nothing to prevent these companies bringing in non-state partners, they have traditionally been reluctant to share the resources.
Gazprom Neft is already partnered with Novatek at the Arcticgas and Nortgas joint ventures in the Yamalo-Nenets region.