Sechin Taps Ally to Head Rosneft-ITERA JV, Boosting Independents' Role in Gas

By Ben Priddy, April 4, 2013

WEB EXCLUSIVE, Moscow. Rosneft CEO Igor Sechin announced the appointment of his right-hand man, Eduard Khudainatov, as chief of the company's emerging gas business on April 1. Khudainatov will be in charge of the Rosneft-ITERA joint venture, created in August 2012 and set to produce its first 13 billion cubic meters (bcm) of gas in Yamal this year.

"ITERA could become the chief operator of [our] gas projects, but they must first prove their effectiveness," Sechin said in November 2012. Now, ITERA is expected to be the lead operator of all future Rosneft gas projects in Russia. ITERA's offshore drilling experience in the Caspian Sea could also be a key asset for Rosneft, after the company acquired 21 trillion cubic meters (tcm) of offshore gas in the Arctic this January. Yet, one of the venture's greatest tasks ahead is to gain access to Gazprom's gas transport system.

ITERA, Russia's second-largest independent gas producer after Novatek, was the first private company to produce gas in the country's onshore Arctic region. The company's chief area of operations is in the Yamal Pensinsula, where it first began producing gas in 1999 via a joint venture with Gazprom. ITERA is also active in the electric power sector, petrochemicals, and pipeline construction in former Soviet states. It has built gas pipelines in Russia, Turkmenistan, other CIS countries, and the Baltic states. Currently, ITERA is developing block 21 of Turkmenistan's offshore sector of the Caspian Sea, a project it originally planned to undertake with Zarubezhneft, according to the company's website.

News first broke about a potential Rosneft-ITERA joint gas venture in February 2012 when both companies signed a strategic cooperation agreement expressing interest in gas exploration and production in Russia. Yet, there were no concrete details of any planned upstream activities until August 2012, when Rosneft and ITERA formally created a joint venture. Rosneft holds a 51 percent controlling stake in the JV, acquiring the shares in exchange for the Kynsko-Chaselskoye Neftegaz company and $173 million.

The majority of ITERA's gas projects in Yamal are now under the control of the JV, but are expected to remain under the ITERA name. Currently ITERA participates in two joint gas projects in the Yamal Peninsula: "Purgaz," a joint venture with Gazprom that currently produces 15 bcm per year; and "Sibeneftegaz," a joint venture with Novatek that currently produces 10.3 bcm per year. ITERA also owns 67 percent of the "Uralsevergaz-NGK" joint venture with the government of Sverdlovsk Oblast, where the company is the main supplier of natural gas. The Rosneft-ITERA JV is expected to bring the Kynsko-Chaselskoi group of fields online in Yamal in 2018, with a starting production capacity of 6.5 bcm. The JV is projected to hold 372 bcm of consolidated probable gas reserves and an additional 15.7 million tons of liquid hydrocarbons, Russian news outlet Prime reports. 

Under Eduard Khudainatov, who is also Rosneft's first vice president of operations, ITERA is expected to play the central role in Rosneft's emerging gas ambitions. Rosneft acquired an