OREANDA-NEWS. July 31, 2007. TNK-BP is getting rid of one of its oldest oil-producing assets in the Orenburg Region – Buguruslanneft. The company is going to invest the money gained through this transaction into buying licenses for development of new fields in this region. So far the company sold only its service enterprises in the Orenburg Region.

Buguruslanneft LLC was established in early 2007 based on the assets of the oil and gas production company Buguruslanneft owned by Orenburgneft, a 100% subsidiary of TNK-BP. Upon its inception, licenses for development of 25 oil fields were rewritten from Orenburgneft to Buguruslanneft. Buguruslanneft LLC is currently developing 25 fields including Agarovskoe, Barsukovskoe, Grafskoe, and Zavyalovskoe fields. Buguruslanneft accounts for approximately 1% of the annual production of TNK-BP (73 million tons), which is 670,000–680,000 tons of oil a year. Orenburgneft is developing approximately 100 fields, most of which are in the Orenburg Region.

Robert Dudley, President of TNK-BP, announced the intention of the company to sell Buguruslanneft during his recent visit to Orenburg, but did not specify the reasons behind this decision.

TNK-BP is going to use the funds gained for its expansion by purchasing new licenses at tenders in 2008 for development of other subsoil areas in the Orenburg Region, added Alexander Shadrin, representative of TNK-BP. Mr. Dudley explained that TNK-BP is aiming at 100% replenishment of its reserves by 2010.

According to Lyudmila Kotunova, Head of the Department of Geology and Licensing, Orenburgnedra, the subsoil licensing agency will put approximately 40 subsoil areas to tenders in this and following years, including subsoil areas of federal importance with recoverable reserves of more than 1 million tons. She did not name the subsoil areas though.

TNK-BP is now negotiating with potential buyers of Buguruslanneft, said Mr. Shadrin but did specify the tentative cost of this asset of TNK-BP. Dmitry Lyutyagin, analyst of the investment financial company Solid, estimated Buguruslanneft at $115–210 million.

Buguruslanneft is the first oil-producing asset put by TNK-BP to sales. Earlier, the company was actively selling its service enterprises in Orenburg. In 2006, Baker Hughes (USA) purchased TNK-BP’s Orenburgneftegeofizika, Cosl (China) bought a specialized backfill enterprise, and in early 2007 C.A.T. Oil AG (Austria) acquired Fil-Oram.

According to estimates of Finam, Buguruslanneft may be bought by Novatek or Gazprom Oil. Mr. Lyutyagin thinks that Buguruslanneft is an attractive asset for small oil-producing companies working in the Orenburg Region.

Mikhail Lozovoi, representative of Novatek, noted that the company is interested only in gas assets. Natalya Vyalkina, Head of the Press Service of Gazprom Oil, informed that experts of Gazprom Oil did not analyze this oil-producing asset yet as the sale announcement was only made on Friday.

Mr. Lyutyagin supposed that TNK-BP most probably is preparing to sell this asset since its inception in early 2007, having rewritten a part of field development licenses from Orenburgneft to Buguruslanneft. “The growth of production costs outstrips the growth of earnings, for which reason large producers, such as Lukoil, Rosneft, and TNK-BP, prefer to focus their attention on major projects,” added he. The analyst could not specify the earnings of Buguruslanneft, because Orenburgneft did not divide its earnings in different fields, but suggested that the annual investments into production could be up to $6.4–7 million.

Depletion of reserves in the Orenburg fields of TNK-BP urges the company to invest more into oil exploration. In 2006, Orenburgneft doubled its investments into geological exploration compared to 2005 and raised them up to $855 million rubles. As a result, having produced more than 16 million tons of oil, Orenburgneft explored almost 24 million tons.

Investments of TNK-BP in 2008 may rise up to $4–4.5 billion compared to $4 billion in 2007, said Robert Dudley, President of TNK-BP, on Friday at a meeting with the heads of municipalities of the Orenburg Region. According to him, 70% of investments will be spent for production, technical expenses, and oilfield services, 15–20% will go to oil refining and marketing, and the rest will be used for corporate investments and equipment of plants.