Gazprom Neft Aims for Output Hike

Gazprom Neft has sharply increased its investment outlay this year -- to $2.5 billion -- in an attempt to reverse declining production figures, the company said in a statement Wednesday.

But the potential increase in output will be modest, about 1 percent by 2010, which is well below the current national production growth average.

Gazprom Neft, the oil arm of state-run natural gas giant Gazprom, plans to produce 33 million tons this year and increase output to 35 million tons by 2010, it said.

It produced 32.7 million tons last year, which was down a second straight year from its peak production of 34 million tons in 2004.

"We want to develop," Gazprom Neft spokeswoman Natalya Vyalkina said. "We have bought many new fields and want to buy more."

The firm's board of directors approved the new investment program in March but did not release any details until Wednesday.

Most of the new investment, about $1.9 billion, will go to buying the rights to develop new fields and for the exploration of current fields, including Priobskoye in western Siberia, Vyalkina said.

The company has already said Priobskoye would become one of the mainstays of its future production.

The increase in investment this year will allow Gazprom Neft to "reverse the trend of dwindling oil production and position itself for a gradual growth of output," the statement said.


All the same, the increase of 1 percent over three years will barely be visible -- if it materializes -- compared even with the slow growth of the rest of the oil sector, said Dmitry Lukashov, an oil analyst at Alfa Bank.

Economic Development and Trade Minister German Gref said in March that Russia had produced just 1.6 percent more oil last year than in 2005.

The depletion of current fields is forcing oil companies to spend more just to maintain production levels, let alone raise them, Alfa Bank warned repeatedly earlier this year. Gazprom Neft's significant outlays in pursuit of a small change only confirm the bank's stance, Lukashov said.

Konstantin Cherepanov, an oil analyst at investment bank CIT Finance, said Gazprom Neft would most likely be able only to stabilize production, and not increase it.

He called Gazprom Neft's investment "impressive," saying Russia's biggest oil producer, Rosneft, invested $5.6 billion in new licenses and development last year.

Another portion of Gazprom Neft's new investment will go toward the construction of a number of power stations to supply electricity to production units, Vyalkina said.

Money will also go for upgrading refineries and filling stations, as well as to finance projects to use the gas that is produced in the process of pumping oil, the statement said.

Gazprom Neft's total investment last year was $1.5 billion, a growth of 43 percent over 2005, and this year's increase is another 66 percent.

The firm signed a memorandum of understanding with Norway's Statoil last month to study opportunities for joint projects. The Russian company and U.S. oil major Chevron also announced a joint venture in January to develop western Siberian oil fields.

Gazprom bought Gazprom Neft, formerly called Sibneft, from Roman Abramovich in 2005, the same year in which its production first slumped.