Smaller oil companies have decided against investing in Russia. For example, America's Marathon Oil Corporation recently announced it was suspending investment in Russia, despite an earlier promise to invest $378 million in its 100%-owned subsidiary Khanty-Mansiysk Oil Corp., saying it the move was due to constant changes in the Russian tax sphere and political situation.
Larger companies are bolder. The French-Belgian oil major Total recently announced it was going to buy a blocking stake in Russia's largest independent gas producer, Novatek, for about $1 billion. A Total spokesman told Vedomosti that the company wanted to get a 52% stake in a project to develop the Vankorskoye field in the north of the Krasnoyarsk Territory and 60% in the neighboring Severno-Vankorskoye field. Investment in the two projects is estimated at $4.7 billion.
Russia is a world leader in oil production and has the largest natural gas reserves, so Royal Dutch/Shell is keen on expanding its presence in the country, a company spokesman, Andy Corrigan, said.
BP has already gained from a similar strategy. According to the British major's financial statements for the first nine months of 2004, without its Russian subsidiary, the company would have seen a 7% reduction in oil production. But owing to its Russian assets, the decline was only 4%.
The industry leaders' optimism is possibly based on certain state guarantees, analysts believe. Dmitry Shemetilo from Commerzbank Securities is positive that major foreign investment is made on approval of the country's leadership. This approval implies additional conditions. For example, ConocoPhillips, which recently won a 7.6% stake in LUKoil at a state auction, will lobby its Russian partner's interests in Iraq. According to the expert, the current political risks in Russia for major Western companies are minimal.
