OREANDA-NEWS. On March 31, 2009 The European Bank for Reconstruction and Development has agreed to lend Irkutsk Oil Company up to EUR90 million, both to enable it to implement a plan to cut gas flaring dramatically at its East Siberian oilfields by the end of this year and to restructure its debt, reported the press-centre of EBRD.

Irkutsk Oil is the leading oil and gas condensate producer in the Irkutsk region, one of Russia’s richest in hydrocarbon reserves.

The first EUR 45 million tranche, which carries a seven-year maturity, will be mainly spent on refinancing of a part of the existing debt which the company raised in order to bankroll the initial capital expenditure for creating a gas cycling project at its main Yarakta field.

Russia is currently the global leader in gas flaring. To combat this, the government earlier this year set a 2012 deadline by which oil companies will have to raise utilization of associated petroleum gas to 95 percent or face crippling fines.

Irkutsk Oil Company’s plans to re-inject associated gas into the reservoir at Yarakta field will enable it to meet this target by the end of 2009. The EBRD also is working with Irkutsk Oil Company on finding ways to monetise the resulting emission cuts.

Through this transaction the EBRD is not only demonstrating financial support as a shareholder during a crisis which is affecting all of the Russian economy, but it is also reaffirming firm commitment to the client’s environmental goals, particularly in terms of cutting gas flaring, said Kevin Bortz, Director of the EBRD’s Natural Resources team.

Today, all but four percent of the associated gas produced by the field is flared due to insufficient demand in this under-populated region and the lack of an export route until Russia’s planned first gas pipeline to China or an alternative gas infrastructure is built.

The company, which produced nearly 300,000 tons of oil and condensate in 2008, will not only reduce flaring thanks to the gas cycling project, but also enhance its hydrocarbon recovery rate.

The project allows the separation of gas and condensate from production and provides for the subsequent re-injection of the associated and natural gas back into the reservoir. The volume to be re-injected at the Yarakta field alone is expected to reach 360 million cubic metres a year from 2010.

The second EUR 45 million tranche of this secured loan will carry a 5-year maturity and will be used to finance further drilling and capital expenditure at the same Yarakta field, whose development the company has decided to prioritise. Irkutsk Oil is expected to spend approximately US200 million on the development of this field over the next three years.

The EBRD plans to syndicate part of the second tranche. The company had earlier already lined up additional financing for its project from Sberbank.

The EBRD acquired an 8.15 percent stake in 2008 in this privately-owned oil company. Irkutsk Oil used the bulk of the funds obtained from that capital injection to restructure its balance sheet but then increased short-term borrowing due to capital expenditure requirements.