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European Bank signs first private sector oil and gas project in Russia
The first formal signing of a loan agreement for a private sector oil and gas project by the European Bank for Reconstruction and Development took place today. The US$ 40 million loan was signed with the Chernogorskoye joint venture, a Russian limited liability company jointly owned by Chernogorneft A/O, a Russian oil producer, and Anderman/Smith Overseas, Inc, a US based oil exploration and production company.
The loan will be used to construct oil field facilities and purchase equipment and supplies to develop an existing West Siberian oil field which has recoverable reserves of 85 million barrels. At peak production, the field is expected to generate in excess of US$ 200 million in gross annual revenues. The loan will also facilitate the transfer of modern oil field development techniques and foreign know-how to Russian oil producers.
Tom Wilson, Anderman/Smith's Senior Vice President International, stated "The signing today represents the culmination of over a year of effort and team work among Chernogorskoye, the European Bank and US Eximbank. Project finance such as this will become an increasingly important component of foreign investment in the Russian oil and gas sector. Anderman/Smith and Chernogorneft wish to thank the European Bank, US Eximbank and all the parties involved for making the signing today possible."
Ron Freeman, European Bank's First Vice President for Merchant Banking, said "While Russia's oil and gas reserves are among its most exportable resources, its oil industry has suffered from an almost complete lack of investment in recent years, reducing production and export values. Regenerating this industry is one of the Bank's priority areas and we have been working closely with the Russian authorities to find solutions in this hugely complex environment."
Randal Fischer, Head of the Bank's Natural Resources team, added "Much new ground was covered to get this project and its financing to this stage. As a result it will send positive signals to the industry and demonstrate support for the small and medium sized independent oil companies seeking investment opportunities in the Russian oil and gas sector. Investing in the industry will also provide new markets for Russian oil equipment manufacturers who have found it difficult to sell their products, even domestically."
Other investors in the project include Itochu, one of Japan's largest trading companies, which has acquired 20% of Anderman/Smith's equity share in the project. The Japanese company has been involved in oil trading and equipment sales to Russia for over 20 years. The US. Export-Import Bank is also financing 85% of the US-sourced equipment costs, equivalent to US$ 44 million. Morgan Grenfell & Co., the UK merchant bank, acted as financial advisor to the joint venture.
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