Pechora Energy LLC

Location:

Russia

Project number:

39611

Business sector:

Natural resources

Notice type:

Private

Environmental category:

B

Target board date:

09 Sep 2008

Status:

Completed

PSD disclosed:

08 Aug 2008

Project Description

The appraisal, pilot production and development of plans for further exploitation of the Luzskoye oil field under licence in the Timan-Pechora basin in the Komi Republic. The proposed financing will allow the Company to further evaluate subsurface resources using existing surface facilities (ie, well pads, roads, transportation methods etc.). Results of the appraisal drilling and pilot production phase will be incorporated in the reservoir model to develop future exploitation plans for the field which should be implemented in 2010 or later. The company agreed with the EBRD on an Environmental Action Plan, one of whose main aspects are measures to minimize the use of gas flaring at the company’s oil fields.

Transition Impact

The proposed transaction will contribute to strengthen the private sector in the Russian oil and gas upstream sector and foster the acquisition of small and medium sized oil and gas licenses by independent oil and gas companies.

Through the Project, the Bank will be able to promote improvements in the business and corporate governance structure of the company and the sponsor including production of IFRS audited accounts and adoption of international corporate governance principles. More specifically, the Bank will require that the company publishes its payments to the Russian authorities (“publish what you pay”). In addition, the Bank will push to maintain and further improve environmental and labour protection in the company’s operations. This will include the adoption and compliance with an Environmental Action Plan.The proposed transaction will contribute to strengthen the private sector in the Russian oil and gas upstream sector and foster the acquisition of small and medium sized oil and gas licenses by independent oil and gas companies.

The Client

Pechora Energy LLC, a limited liability company established in the Russian Federation and a subsidiary of Concorde Oil and Gas plc, incorporated in the United Kingdom. The client holds the licence for oil and gas production at the Luzskoye field of the Komi Republic.

EBRD Finance

Loan to Pechora Energy LLC of up to US$ 45 million, including a first phase of USD 8 million.

Project Cost

Capital costs of up to US$ 125 million for the full field development.

Environmental Impact

Screened B/1. Given that the proposed appraisal and pilot production project utilizes existing infrastructure (including roads, well pads, treatment facility and rail export terminal) and is not considered to be a major extension, it was determined that the potential environmental impacts could readily be identified and assessed, and therefore an environmental audit and environmental analysis were completed. Results of the environmental audit indicate that while there are some limited issues to be addressed (including providing ground cover for slag storage, surface water control and treatment at a workshop and parking area and addressing small areas of soil staining) the drilling and mud control measures are compliant with best practice. Only water based drilling muds are used, disposal pits are lined and real time gas monitoring is implemented during drilling.

Results of the Environmental Analysis indicate that the mitigation measures and monitoring proposed by the company will be adequate to avoid significant environmental impacts. An environmental action plan (EAP) has been agreed with the company establishing the mitigation and monitoring measures to be implemented. One of the main items contained in the EAP is the development of a gas utilization plan to minimise future gas flaring. While the details of this plan are not yet completed, plans are to use associated gas in the oil treatment facility. Unfortunately (from a process standpoint), it is possible that the amounts of gas produced may not fully satisfy these needs. Therefore, if necessary, supplemental diesel burners may also be used. Another main issue contained in the EAP is the environmental impact assessment of the various options to be considered for crude export as part of full field development. The company has agreed to include an environmental impact assessment in the decision making process for assessing and selecting the final export mode for the crude oil during full field development. Options for this export include pipeline transport, combination of trucking and rail (as is currently used), and a combination of pipeline and rail. Both options including the rail transport call for use of the existing rail terminal.

The due diligence showed that the company is committed and has appropriate skills and measures to carry out its activities in strict conformity with the project design and applicable health and safety regulations. The company has the necessary operating licences and an approved Well Drilling Accident Contingency Plan and an Oil Spill Contingency Plan.

The disclosure for the project has been carried out in accordance with the EBRD’s Environmental Policy requirements for B level project, i.e., an Environmental Review Summary including the project description and environmental due diligence results have been disclosed in a local language at locations accessible by the affected parties. Should the Bank decide to consider providing financing for full field development at a later stage, this will be subject of a separate environmental and social appraisal in accordance with the provisions of the EBRD’s Environmental Policy.

Technical Cooperation

None.

Company Contact

Alexander Denisov, General Director
Pechora Energy Company

Minskaya Street 1G
Golden Keys 2
Cottage 7, Office 4
Moscow 119590, Russian Federation

Email: pecomp@mail.ru
or info@concordeoilandgas.com
Tel: +7-495-647-1294

 

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