Rosneft Global Deal-Making Spree Put Competitors Under Pressure

New exploration deals for Rosneft show how it is able to flex its muscles in the world's most fragile places, and beat other exploration companies to the punch. With the encouragement and backing of the Russian government, competitors need to up their game to access some of the most attractive and highest yielding fields.

Rosneft, the Russian-government-owned oil giant is been on a mammoth deal-making spree over the last few months and today it announced yet another partnership, this time with struggling Venezuela.

President Nicolas Maduro signed the deal during a visit to Venezuela by Rosneft CEO Igor Sechin. Under the agreement, Rosneft was awarded licences to develop two offshore gas fields, allowing its subsidiary, Grupo Rosneft, to export gas produced at the Patao and Mejillones fields in the Caribbean Sea for the next 30 years.

Total estimated reserves at the two fields are 180 billion cubic metres (bcm) of gas, and the maximum annual production would be 6.5 bcm. PDVSA, the state-owned Venuzelan oil company, currently has debts owning to Rosneft of approximately $6 billion. Last year, Rosneft also took a 49.9% stake in Citgo, the Venezuelan state oil company's refining subsidiary in the United States, as collateral for a $1.5 billion loan to the Venezuelan company.

But this is only the latest in a string of deals for the Russian company.

In October, the company closed a deal to acquire a 30% stake in the concessions agreement for the development of Zohr field, the largest deepwater gas field in the Mediterranean Sea, from Italian company Eni S.p.A. The Zohr gas field was discovered by Eni at the shelf of Egypt in 2015. The area of the field is 231 km2, and its in-place reserves exceed 850 bcm.

Not content to build the company's reach through partnerships alone, Rosneft is upping its exploration and drilling activity and in June this year, after just two months of drilling, discovered hydrocarbon deposits on the Eastern Arctic shelf at the Tsentralno-Olginskaya-1 well.

Despite operating under restrictive sanctions imposed by the US and EU, Rosneft continues to be the world's largest publicly traded petroleum company, and has shown no sign of putting the brakes on its ambitions. In fact, it could be argued that the sanctions has pushed the company to strike deals with less stable regimes – and is doing more harm than good.

In November, Rosneft inked a new deal with neighbour China; agreeing to supply its new partner CEFC China Energy with almost 61m tonnes of oil over the next five years. China, as the world's largest oil importer, is more than happy to oblige, viewing Russia's vast energy resources as key to creating a fully-integrated crude supply chain.

This new deal puts Russia ahead of Saudi Arabia in China and comes hot on the heels of an announcement that CEFC is in the process of becoming a shareholder in Rosneft, having agreed to buy 14.16% of the company for $9.1bn. Many industry-watchers saw this move as a clear sign that the Russian government intends to take a more aggressive stance to fuel security, by-pass the West and look to build influence elsewhere.

There can be no doubt, based on its recent activity that Rosneft is looking for deals in areas it sees as strategically important for Russia. In early November, Russia and Iran signed agreements to collaborate on deals worth up to $30bn. On signing the deal, Igor Sechin, said its pact was just the first step before a “binding” deal to participate in Iran's oil and gas projects over the next few years. He estimated that, “the overall amount of investments in the projects will total up to $30bn. When completed, the production plateau will reach 55m tonnes of oil per year.”

In a new twist, today the company also announced it was discussing future deals with Cuba on the back of a meeting held between Cuban President Raul Castro and the Rosneft chief Igor Sechin. Rosneft said Castro and Sechin had also discussed joint oil and gas projects, including a possibility of cooperation in upgrading an oil refinery in Cienfuegos.

If Rosneft continues to beat its competitors to the punch, then it will be positioned for growth over the next decade – while its competitors struggle to drill oil at a price and margin that makes sense.

It seems Rosneft are unbowed by sanctions and determined to create opportunities worldwide. No one would bet against this partnership spree continuing well into the next decade.

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