The head of “Zarubezhneft” N.Brunich is sure about the successful work of the company both in Russia and abroad.

Moscow. 19-th of August. INTERFAX-ANI – Lately “Zarubezhneft” as a mineral developer actively gets beyond the scope of one oil and gas project on the Vietnam shallow zone. The company rapidly expands the geography of its activities, takes part in new projects both in Russia and Third Countries. The general director of “Zarubezhneft” Nikolay Brunich told Petroleum Information Agency about the plans of further company development.

INTERFAX: On the 7-th of May “Zarubezhneft” won the tender for getting the right for exploitation of four pools of Central Horeyversky uplift (CHU) in the Nenets autonomous county. The exploitation operator of these fields will be as planned a joint venture with PetroVietnam “Rusvietpetro” company. Is the registration of “Rusvietpetro” already complete?

N.G. Brunich: It’s true that in early may “Zarubezhneft” won the tender for four blocks of Central Horeyversky uplift. On the 7-th of June we received the licenses for all four blocks. After this PetroVietnam company which is our partner in “Vietsovpetro” JV in Vietnam was invited to take part in this project. “Zarubezhneft” established “Rusvietpetro” company for the joint exploitation of CHU. On the 28-th of July the registration of this company was complete, all necessary foundation documents received, rental contract for floor areas in our office signed and the structure and JV organization chart approved. Currently we recruit staff in accordance with the scope of works scheduled for the 2008-2009 season. The Vietnamese side proposed us to reserve the vacancy of JV deputy general director and three vacancies of three technical experts. Recently “Zarubezhneft” was visited by five PetroVietnam experts who worked on the preparation of the agreement on the Vietnamese company entering JV “Rusvietpetro”.

INTERFAX: Are the licenses for the four CHU blocks already given to the JV? When is it planned to complete the transaction of selling the share in “Rusvietpetro” to PetroVietnam?

N.G. Brunich: To give the licenses to “Rusvietpetro” it’s necessary to execute a definite procedure in accordance with the Subsoil Law. We almost completed it’s execution. The agency contract for the execution of works is prepared, credit contract between “Zarubezhneft” and “Rusvietpetro” and other documents are prepared too. In the nearest future “Rusvietpetro” experts will submit all the documents necessary for the license conversion procedure. This process takes from one to two months. It means that in the middle or in the end of September we can complete it. Presently we don’t see any constraining factors.

Thus we plan to finish the transfer of the share in JV to the Vietnamese side in the end of October when prime-minister of Vietnam Nguyen Tan Dung and head of PetroVietnam Chan Ngoc Khanh will visit Moscow. If nothing interferes, by this time all the documents necessary to sign the agreement on PetroVietnam entering the group of “Rusvietpetro” founders will be prepared. By the time of this meeting we also must irrevocably agree upon the JV “Vietsovpetro” reorganization after 2010 procedure. We plan to carry out all the agreements on this topic in September.

INTERFAX: And on which terms is PetroVietnam planning to enter the Russian JV?

N.G. Brunich: At least on the terms not worse that those which we are now agreeing upon with the Vietnamese side as part of JV “Vietsovpetro” reorganization, that is “Zarubezhneft” will hold 51% and 49% will belong to PetroVietnam. Moreover, according to the Russian laws it’s necessary for the license conversion that the controlling block of shares belongs to the parent company.

INTERFAX: When can you proceed to the geological exploration works in CHU?

N.G. Brunich: If we speak about the actual status, geological exploration there has already begun. For the first stage – it is the preparation of 3D geological works program on all the four blocks – the contractor is already chosen according to the results of the tender. VNIIGRI has become one. The second stage is the seismic research itself, the third stage is the processing and interpretation of 3D field works. Moreover we want to prepare the design and estimate documentation for the drilling of exploration wells and carry out the part of the oilfield construction project. What is meant here is the project of oil-pipeline construction, absence of which dramatically restrains the beginning of recovery on the objects and the beginning of field camp construction project execution. At the same time we study the question of our own drilled wells, we plan to buy them and carry out the overhaul repair in the 2008-2009 season. These are the main works we plan to carry out during this season. But much will depend on whether the weather conditions will allow us to build winter roads. It’s known that practical works in this region can be carried out only during winter; the best case is November-May of maybe January-May.

INTERFAX: And what means of oil transportation from the CHU areas do you consider?

N.G. Brunich: We consider three directions. The first one – through the Haryaginskoe oil field – Haryaga-Usa oil pipeline – “Transneft” metering station. The second one is with the direct way out to the Barentsov sea port through the Varandey terminal which has been already equipped by “LUKOIL”. But this variant will depend on who will win the tender for the exploitation of Terbs and Titov oil fields. If we know the name of resources owner it will allow us to proceed with negotiations of constructing common infrastructure. This variant will allow us to go directly to the Barentsov sea shelf instead of transporting oil through the half of the country to Primorsk, especially taking into consideration that the load of “Usa-Yaroslavl” transporting system is already at it’s maximum. The third way we considered was the use of “Rosneft” infrastructure. This variant we took as a basis for the development of the technical and economical substantiation of the project. The remoteness of the planning base on first block of the North-Hosedayuskoe oil field (is a part of CHU – Interfax) from the “Rosneft” areas is around 90 kilometers on the straight. The way the trance will be we’ll consider later, at the moment the engineering surveys are being carried out. We have already signed an agreement with “Rosneft” and we agreed on the flow volumes up to 2 million tons of oil. It is the fastest and the most convenient route for us. Especially taking into consideration that in this case we deal with only one owner of the pipeline – with “Rosneft”.

INTERFAX: At the expense of what funds will the CHU exploitation be financed?

N.G. Brunich: On the first stage we together with PetroVietnam will use our own funds which for the present we receive from “White Tiger – Dragon” project. Of course these funds won’t be enough for the whole project, that’s why we are already preparing the project financing, we will carry out a tender between financial institutions and use credits. But now we have the opportunity to use out own funds and not harm the dividend policy of the State.

INTERFAX: In February “Zarubezhneft” appealed to the Government with the proposal to give it 20% in the Haryaginskoe PSA. Is a decision on the transfer of this option to “Zarubezhneft” already concluded?

N.G. Brunich: In early August we received the direction of the prime-minister of Russian Federation Igor Ivanovich Sechin in which he empowered three ministries (Ministry of Energy, Ministry of Natural Resources and Ministry of Justice – ANI) to study the proposal of “Zarubezhneft”, to accept a decision and inform the general director of the company of this decision. We hope that if our proposal is supported we can start negotiations with the Haryaginskoe PSA shareholders – Total and Hydro companies – on the terms of entering the project and buying a share.

INTERFAX: On which terms is “Zarubezhneft” ready to enter this project?

N.G. Brunich: It is early to discuss this question. We need to hold negotiations with the shareholders.

INTERFAX: The thing is that some time ago “LUKOIL” (previously it owned the right for this option – ANI) said that it is not satisfied with the terms of entering this project considering that Haryaginskoe oil field itself is hard for exploitation.

N.G. Brunich: I still think it’s a bit early to discuss the terms but I think they will differ from ones offered to “LUKOIL” as we are a state company and this option belongs to the state.

INTERFAX: Is “Zarubezhneft” planning to take part in other oil and gas projects in Russia?

N.G. Brunich: Yes, we certainly will expand our area of operations in Russia. For example, according to the decree of the president of Russian Federation dated 2004 “Zarubezhneft” must develop a policy for enhanced oil recovery which later can be used in foreign projects. In this respect we have held negotiations with the governor of Khanty-Mansiisk autonomous district. And at present we successfully work together with “Gazprom Neft” which is one of mineral developers in this region. We have already signed a protocol of intentions. We are choosing the areas which our company together with “Gazprom Neft” could use as a ground for development of enhanced oil recovery methods. Moreover, if the Government allows us to, we are planning to take part in the tenders for the right for exploitation of areas in the Timano-Pechorsky shelf coastal zone.

INTERFAX: But the latest amendments to the Subsoil Law cancel to tenders on the offshore areas and give exploitation rights only to two companies – “Rosneft” and “Gazprom”.

N.G. Brunich: It seems that it can’t be the other way right now. If there are two companies – “Rosneft” and “Gazprom” – that have the right for the offshore works, then there must be some terms that define which of these companies will get the right to exploit one or another oil field. But we plan to be the third one. For “Zarubezhneft” complies with almost all requirements of Russian laws except one – we don’t have a five-year experience of work in the Russian offshore areas. But we have a many-years experience of oil recovery in Vietnam offshore areas. So we will work in this direction.

INTERFAX: The company is interested in the Pechorskoe sea shallow zone?

N.G. Brunich: I am referring to the Timano-Pechorsky field and it’s borders. It is Pechorskoe and Barentsevo sea. Of course we don’t plan to enter the territory of Kamchatka or Sahalin.

INTERFAX: And does “Zarubezhneft” possess the technology for exploitation in this region? For example, Pechorskoe sea is very shallow, the average depth is like 5 meters.

N.G. Brunich: There where we plan to work the sea depth is 20 meters. It will allow us to use oil rigs that presently work on the Vietnam shallow zone. Minimal depth for them is 15 meters.

INTERFAX: And have you considered the possibility of engaging PetroVietnam as a foreign partner for the work on the Russian shallow zone?

N.G. Brunich: Before considering such opportunity we have to get the right for the area and only after that invite the partners.

INTERFAX: As it seems, within the frames of active legislation Petrovietnam will just have a possibility to move into the Russian shelf using the law’s article “On subsurface” about an exclusive right to develop the Russian shelf which can be granted to foreign companies under resolution of the Government of Russia…

N.G. Brunich: The idea is not unreasonable, that’s why the JV we establish and 49% of which shall be owned by PetroVietnam as one of the options, shall take part in a licensing program of the Russian shelf. You see, even the largest companies coming to exploration projects are trying to share the risks with the partner. It is always very much risky for one company to move into the shelf projects.

INTERFAX: Does oil production in Vietsovpetro decline by approximately 11-13% annually? Is there any possibility to stabilize it?

N.G. Brunich: The oilfield has been already developed for over 25 years, 170 million tons of oil were produced. It is natural that in the first years after reaching the peak production level the oil production decline was around 3-5%. At the thirteenth year of the field development it is just impossible to hold the production decline at such level. Currently, in accordance with the technical scheme of the project the annual decline should be in order of 10-11%. This is absolutely normal. In any case, even taking into account the decline rates we still produce more than the half of all the volumes of oil being produced in Vietnam. After approving the new technical scheme of the project the White Tiger field development shall be profitable up to the year 2024. Therefore, we are very much interested in extending the agreement with Petrovietnam after the year 2010.

INTERFAX: What is the progress of Doi Moi Project implementation? What are the reserves of this field?

N.G. Brunich: In this project – on 09-3 block development – Zarubezhneft owns 50%, Petrovienam – 35%, and Idemitsu (Japan) – 15%. In this area a commercial field was discovered, the reserves were entered into the records. At the same time the recoverable reserves reach approximately 28 million tons of oil. Vietsovpetro was determined as the Operator of the field. That was made purposely to avoid creating a new organizational structure. We will even be using in part the Vietsovpetro’s infrastructure. We plan starting production at the field in the end of 2009.

INTERFAX: What is the oil production volume in the area? Shall allow it compensating partially the production decline in White Tiger field?

N.G. Brunich: Plateau oil rate will be maximum 1-1,2 million tons. Plus Vietsovpetro has a close by new block 04-3. There one exploration well is left to drill. The forecast resources of this area may be 150-160 million tons of oil equivalent. If the drilling is successful in 2009 we shall obtain the right to develop this block. We expect that the recoverable oil reserves in this area shall be around 60 million tons. In this case the plateau rate will be approximately 2-2,5 million tons per year. This year in White Tiger field we are planning to produce 7,65 million tons. Thus, if we add to the volumes of the White Tiger also Doi Moi and 04-3 block volumes, it will turn out that we will be producing approximately 5-5,5 million tons of oil. It is rather large volume for Vietnam shelf, since large fields are not explored there so far.

INTERFAX: Is Zarubezhneft considering a possibility to take part in field development in Cuba?

N.G. Brunich: After visiting Cuba by Intergovernmental Committee headed by vice-prime minister Igor Sechin we consider a possibility to participate in oil recovery enhancement project at the active Boca De Jaruco field. It is situated on land, and is developed for 40 years. The challenge is that the field is characterized by complex geological structure and contains viscous oil resulting in poor oil recovery rate. By now, only about 4% of its total reserves are recovered. Therefore, for its efficient development it is required to apply modern oil recovery enhancement methods. We propose applying the home-developed methods. We have already established a working group, quite a lot of initial materials received. Tentatively, on the 20th of September we are planning to repeat a visit to Cuba for holding negotiations with the owner of the field – Cupet Company, which is the major producing company on land of Cuba. There we plan to sign an agreement and consider all the required parameters and initial data for feasibility study preparation. In case we see a commercial effect from this project implementation we shall sign the contract first for building a test site and if the works are carried out successfully, we shall sign the same for the whole field. In addition, we consider a possibility to participate in exploration project in the territory of Cuba. We are invited there by PetroVietnam which owns already three blocks in the shelf. But so far we explore this question. The decision whether to enter this project or not shall be taken after we see how much it is interesting to us, also from a commercial point of view. Nevertheless, the remoteness is quite high. In addition, it should be taken into account that for the present none of the leading companies working in Latin America has not physically launched the exploration works in the shelf of Cuba since it is in deep-waters. Thus, the risk of these projects is high.

INTERFAX: Have you found any areas in Angola’s shelf? Are you ready for participation in tenders for their development, under what conditions?

N.G. Brunich: For the moment there are no concrete projects. The country is interesting for us and it is marked as one of the priority directions in our strategic program. We receive a lot of offers both from foreign companies for joint shelf development and from the leadership of the country but all these offers are not of much interest.

INTERFAX: What is the state of the negotiations on resuming service contracts in India?

N.G. Brunich: In India we are going to recommence the works and have already received an invitation. In September the working group of Zarubezhneft will come there with a purpose to analyze the new projects proposed by ONGC. In October in India it is planned to conduct a “round-table” discussion between the directors of the companies that participate in fields development of India. I plan to go there and, possibly, to sign a number of documents which will be prepared by our specialists. The matter concerns services rendering including carrying out of works for oil recovery enhancement.

INTERFAX: Has your company any interest in Venezuelan projects?

N.G. Brunich: No, we are not holding any negotiations with Venezuela. We know that among Russian companies Lukoil, Gazprom and TNK-BP are present in there. But this country is still not included in our plans.

INTERFAX: When does it planned to complete the first and the second stages of reconstruction of Bosanski Brod refinery in Bosnia?

N.G. Brunich: The prime-minister of Bosnia Milorad Dodik has offered us to complete the reconstruction of the first process line of the refinery with 1,2 million tons capacity in October, and in November to start obtaining the first products. We shall, certainly, do our best to fulfill this request. However, currently Zarubezhneft carries out an inspection and diagnostics of refinery’s equipment, and the results are unfavourable since the part of the tanks farm requires overhauling. Therefore, possibly, the dates of completing the first stage of reconstruction will be shifted a little. Within the shortest possible time the whole tank farm examination shall be accomplished and on the basis of the data received we will adjust the dates. But, I think, that in any case, in 2008 the refinery shall start operating. As regards the second stage, we still have not started its realization. Italian equipment was used at the refinery and the specialists have not conducted its diagnostics yet. After completing the first stage we are ready to launch its state analysis, to invite the institute to develop for us a project involving the conversion into gasoline and diesel fuel production of European quality. However, the most important for the time present is to launch the first process line. This is important not for us only but also for Bosnia. In fact, Bosanski Brod is one of the city-forming enterprises and its commissioning will allow providing a significant part of the population with the job.

INTERFAX: Together with Bosanski Brod you have acquired a network of petrol stations. Will there be any petrol stations rebranding?

N.G. Brunich: The network consists of 78 petrol stations. They are operating under the Petrol brand but we want to conduct a rebranding. They will be reconstructed at the least, and some of the petrol stations shall be built anew since many of them fall short of the modern requirements.

INTERFAX: Under what brand will they be operating, under Petrol brand or, for example, Zarubezhneft?

N.G. Brunich: There are a lot of proposals, a lot of interesting ideas but we keep our options open so far.

INTERFAX: Do you have plans on expanding the petrol stations network?

N.G. Brunich: We shall certainly expand the network. Respective offers are already available. The leadership of the Republic render assistance in this matter.

INTERFAX: Is the petrol stations network provided for in the territory of Bosnia or in the other countries too?

N.G. Brunich: For the present we plan to work in Bosnia but, perhaps, we shall move to the market of Serbia.

INTERFAX: Do you have plans of further acquisition of the new assets in Europe?

N.G. Brunich: For the moment, we don’t have. The volumes we would produce from Central Khorovey Uplift (CKU) which amount to about 7,5 million tons at the peak production shall be enough for now for the refinery’s operation.

INTERFAX: Is there any answer from Turkmenian authorities regarding the application of the project’s participants of “ZarIt” for the exploration of the Caspian shelf?

N.G. Brunich: We hold the negotiations on this subject for quite a long time. The main obstacle is the territorial disputes between the Caspian basin countries. It is planned to hold a meeting of all the states of this region in September. After the summit, as we hope, a possibility will appear for a more direct-on-point approach to the contract discussion and the commencement of exploration works realization. But “ZarIt” shall exist, and we still plan to obtain a right for three blocks development in the Caspian shelf.

INTERFAX: Does Turkmenistan support you itself?

N.G. Brunich: If Turkmenistan was not ready or was not interested, it would have long ago redistributed these blocks between the other companies or would have refused to “ZarIt” a possibility to obtain the right for the shelf development. Therefore, the Turkmenian party has an interest in this project. It remained only to settle the territorial disputes.