We are involved in oil business

Starting early 2007, ITERA, a Russian independent gas company, is to produce oil in Nigeria and to export LNG from Cameroon to the USA. Igor Makarov, ITERA’s Chairman of the Board of Directors, speaks about ITERA and Gazprom relations, shareholder conflicts and the company strategy.

- Mr. Makarov, you have signed a cooperation agreement with Alexey Miller, head of Gazprom. What does it stipulate for?

- Yes, we have signed a cooperation agreement, which stipulates for four important contracts to be signed. I believe, shortly after signing them we could discuss the details. However, the agreement with Gazprom itself gives us a chance to participate in Russian gas transport system expansion. ITERA is primarily interested in an increase of trunk pipeline capacity used to deliver gas to Sverdlovsk Region. The current capacity limit is 20 BCM per year. Also, we are going to bid for small oil fields in Western Siberia. After acquiring and developing the desired resources, ITERA will be able to annually produce 25-30 BCM by 2010. That is sufficient for us. In my opinion, the company should focus on processing rather than on crude oil and gas trade. Particularly, we are to build a methanol and acetic acid plant in Sverdlovsk Region. We also have plans to build and refurbish ammonia plants. Besides, we are going to erect small power stations in Sverdlovsk Region to meet the demand of certain enterprises. Their total capacity will exceed 1,400 MW.

- What does ITERA gain from selling to Gazprom the control stake of Sibneftegas, the license holder for Beregovoye field development? Is it true that Gazprom does not pay in cash, preferring USD 150-200 million credit allocation in joint projects?

- This is a normal market deal. The scheme has been worked out for 1.5 years, it is quite a complex one, and for now I would rather not reveal its details. Eventually, we have figured out the interest, which the company had been searching for a number of years. Our attorneys are currently developing the scheme to be used by Sibneftegaz to sell their production. It is still a matter of discussion whether the products will be sold at the market or directly delivered to the consumers. Anyway, we will control 49% of gas according to the Purgaz scheme (Gazprom has 51% stake, ITERA owns 49%).

- What is the solution to a disputable issue of the pipeline construction from Beregovoye field? Will ITERA build it or not?

- The pipeline is almost ready, there is just a 14 km gap left to reach pipeline system tie-in point. A team of Gazprom and ITERA experts is selecting the location. The field infrastructure is 80% complete. However, after a while some extra investment will be required to expand it, install booster stations, etc. At this stage we will need loans that could be secured through increase of Sibneftegaz authorized capital or from other sources.

- What are your relations with Akron, the third Sibneftegaz shareholder?

- Akron is a passive shareholder; it has never invested in the enterprise development. Such passiveness is unfair with regard to other shareholders. If nothing changes, we will make an additional issue. According to the agreement made with Gazprom, ITERA is to own 49% stake of Sibneftegaz.

- What is your strategy in oil sector?

- Our involvement in oil business is far from that of Lukoil or TNK-BP. Last year we acquired seven small oil fields in Orenburg, Astrakhan, Stavropol regions and Khantymansiysk Autonomous District. They will allow us to reach 3 million ton production in 3-5 years. I believe we will complete the project and prepare it for sale. By the way, in August we are to commission an oil loading rack in Samara city, meaning we will be able to export up to 7 million tons of petroleum products via Novorossiysk.

- What are your oil production projects in India?

- After we have been shown the options - five oil-and-gas blocks in India - we realized straight away that the company should proceed with prospecting and production. Our partners in the market will be ONGC and Oil India. Also, we are constructing a 6 million ton oil refinery with Indian TATA in the South-East of India. The feasibility study has been completed already.

- How much did ITERA and Oil India offer for Udmurtneft?

- Both Western and Russian experts evaluated the company at USD 2.5 billion. Based on economic feasibility, we offered around USD 3 billion and lost the tender. Currently, we are studying several other projects.

- Do you still negotiate with CNPC and Oil India on the sale of your share in Yugneftegaz, Kalmykia?

- Yes, we continue the talks with the Indian side on the 33% stake sale. As for the Chinese, we do not negotiate with them anymore, since we had to choose between these two companies.

- Have you closed the deal with the Indian Sun Group yet? Why are you interested in it?

- This is an asset exchange, which resulted in acquisition by ITERA of 26% in Sun Energy, while Sun Group received a 26% stake in ITERA Group company. It is very beneficial cooperation that is often misunderstood. Sun Energy comprises several international investment foundations, including the ones in North America. We have established a joint venture named Suntera (50% shares of which belong to ITERA and Sun Group) that has already acquired two oil blocks in Nigeria, and which is going to start producing oil in Africa next year. Suntera has bought 13% of Bowleven, a public oil and gas producer (Cameroon), listed in the London Stock Exchange. Next year we will start 10 billion ton of LNG supplies, produced by the company, to the USA market. To complete the technological chain, Suntera is building a regasification terminal in Canada located close to the gas pipelines, which run to Boston and New York. Suntera invested over USD 500 million in oil and gas asset acquisition. In some 3 years we will make Suntera IPO. Suntera has mobilized a large team of qualified American and British experts in LNG plant construction, who previously worked with ChevronTexaco, Exxon Mobil, and Marathon Oil. ITERA believes that such a management team is capable of carrying out technological projects of virtually any complexity.

- Is ITERA going to list on the London Stock Exchange?

- We decided unanimously not to list ITERA Group on the London Stock Exchange; it is unprofitable. As for the subsidiaries, they will get listed there gradually. We are preparing several companies IPO, since this step has proved to be efficient. During the recent 1.5 years Dune Energy shares went up from USD 0.4 to USD 4.

- What was your foreign partners' reaction to your agreement with Gazprom and Gazprombank?

- All of the Group’s deals are approved by the Board of Directors. That is why no questions emerged. ITERA Group has over 25 shareholders, and the share of USA citizens does not exceed 7%.

- However, Galina Weber was against the deal. How did she become an ITERA Group shareholder? What was the reason for the row that broke out around her share?

- ITERA was founded in 1992. According to a special agreement, certain ITERA managers got their shares after several years of employment. Mr. Urs Weber, the attorney, who supported ITERA activities in Europe, got his share as well. Galina Weber is his wife. Originally, they had a 2.5% stake. Later on, they have got another 12% as a compensation for their engagement in attracting large investments for ITERA projects. We have signed the relevant agreement, under which the Webers’ stake grew up to 14.5%. Last year the agreement expired. However, no investments have been attracted. ITERA shareholders generated another financial scheme. So the Webers were asked to return the 12% stake. Last December the shareholders approved the decision unanimously. Currently, following recommendation of our financial consultants, ITERA is increasing its authorized capital by USD 500 million. Its size has already been increased up to USD 120 million. We promised to provide compensation to the Webers. It suited everybody. However, after they got to know that ITERA would sign an agreement with Gazprom, their claims increased 5-fold. ITERA shareholders refused.

- Can the litigation block your plans to step up cooperation with SUN Group?

- No, it cannot. Everything is done legitimately.

Media news archive