06MOSCOW12912, AMBASSADOR’S MEETING WITH ROSNEFT’S BOGDANCHIKOV

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Reference ID Created Released Classification Origin
06MOSCOW12912 2006-12-13 15:22 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO4127
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #2912/01 3471522
ZNY CCCCC ZZH
O 131522Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5824
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 012912 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA 
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK 
DOE FOR HARBERT/EKIMOFF/PISCITELLI 
DOC FOR 4231/IEP/EUR/JBROUGHER 
NSC FOR GRAHAM AND MCKIBBEN 
 
E.O. 12958: DECL: 12/13/2016 
TAGS: EPET ENRG ECON PREL RS
SUBJECT: AMBASSADOR'S MEETING WITH ROSNEFT'S BOGDANCHIKOV 
 
 
Classified By: Amb. William J. Burns.  Reasons 1.4 (b/d). 
 
1. (C) Summary.  On December 12, the Ambassador met with 
Rosneft's President Sergey Bogdanchikov who confirmed that 
Rosneft is interested in bits of Yukos but that the rumor it 
will purchase Surgutneftegaz (SNG) is a "fairy tale."  He 
claimed that CPC expansion will be "automatic" once an 
inter-governmental agreement (IGA) on the 
Burgas-Alexandroupolis pipeline (BAP) is signed. 
Bogdanchikov reviewed his company's 2006 (the IPO and 
increasing production) and previewed its 2007 and beyond 
(even more production and a wider net of partnerships).  End 
Summary. 
. 
ENERGY SECTOR CONSOLIDATION 
--------------------------- 
. 
2. (C) Bogdanchikov, joined by the Chief of Rosneft's 
Financial Consulting Group Peter O'Brien, said in response to 
the Ambassador's question that he did not believe that 
"anything extraordinary would happen" about further industry 
consolidation.  In particular, he said that we should not 
believe the rumors about Rosneft purchasing SNG and that 
Rosneft would be much better off buying greenfield licenses 
than buying a company with worse financial and production 
indicators than itself.  He said that he had received no 
instructions to pursue SNG.  Bogdanchikov did admit that 
Rosneft is interested in parts of Yukos, in particular some 
downstream and greenfield assets.  However, they would wait 
until the evaluations are completed on the Yukos assets in 
January before making a decision on which ones to go after. 
He also indicated that they may purchase some smaller 
companies in order to boost their reserve base. 
. 
BAP AND CPC 
----------- 
. 
3. (C) Bogdanchikov was upbeat on BAP and CPC expansion, 
indicating that he was "sure expansion will happen in 2007." 
While there were other reasons to expand the pipeline, the 
Ambassador pointed out that such a decision would certainly 
be well-received in the U.S.  Bogdanchikov agreed and 
indicated that a decision to expand CPC will follow "shortly 
and automatically" after the Russian, Greek, and Bulgarian 
governments ink an IGA on BAP.  Bogdanchikov said that he has 
been to Brussels to encourage the EU to get the Bulgarians to 
be more proactive and that Prime Minister Fradkov is 
personally working on hammering out the IGA.  He said the 
Russian government is "scared" of approving CPC expansion 
without approval of the bypass, but did not elaborate on the 
specific fears.  He called both CPC and BAP projects on which 
Rosneft and Chevron must work on together as "common tasks". 
With Russian domestic consumption rising slower than 
production, Rosneft is interested in any alternative export 
route and thus fully backs BAP (Note: Based on our latest 
information, Rosneft will receive a 17 percent stake in BAP). 
. 
2006 WAS A GOOD YEAR... 
----------------------- 
. 
4. (C) Bogdanchikov touched on the highlights of Rosneft's 
year from the IPO in July to the (roundabout) purchase of 
Udmurtneftegaz from TNK-BP.  He emphasized that the IPO was 
part of a long-term process to increase the capitalization of 
the company and expected that, through organic growth alone, 
the company will produce about 2.6 million barrels per day 
(b/d) by 2011, up from 1.6 million b/d.  In order to reach 
these figures, Rosneft spent about $1 billion on 14 licenses 
in 2006, many of them near their Vankor oil field.  He 
expects Vankor to begin producing oil in 2008 and eventually 
reach an output of about 600,000 b/d, with more to follow as 
the nearby licenses are developed.  He pointed out that oil 
from Vankor can go either east (to fill the East Siberian 
Pacific Ocean -- ESPO -- pipeline) or west and even north 
through the port of Dikson. 
. 
...AND THE FUTURE LOOKS BRIGHT TOO. 
----------------------------------- 
. 
5. (C) For 2007, Bogdanchikov told the Ambassador that 
Rosneft will focus on developing the Vankor field, exploring 
new fields, expanding the Tuapse refinery on the Black Sea 
coast, and maintaining rapid production growth.  Rosneft will 
 
MOSCOW 00012912  002 OF 002 
 
 
invest a further $1.2 billion in Vankor next year.  The 
company will also continue its work with TNK-BP to build a 
pipeline from the Verkhnechonskoye field (the two companies 
are partners on this project) and surrounding properties to 
the ESPO.  Rosneft, chronically light on refining capacity, 
will also continue to upgrade the Komsomolsk refinery so that 
it meets global standards. 
. 
PARTNERING 
---------- 
. 
6. (C) Bogdanchikov ran through a litany of current and 
prospective deals in which
 Rosneft will partner with other 
Russian firms and international companies.  He touted the 
good relationship Rosneft has with ExxonMobil in their 
Sakhalin-1 venture and asserted that all is well on that 
project.  He also said that they are "close to commercial 
discoveries" on the Sakhalin-5 project with BP and have 
signed a memorandum establishing joint work on exploration of 
arctic seas including the Kara, Laptev, and Chukotka Seas. 
On the gas front, Rosneft has agreed to a contract with 
Gazprom on price and gas volumes they sell to the gas 
company.  Further, Rosneft expects at least "one more" major 
project with ExxonMobil in Russia and has established a "list 
of priorities" with Shell including dealing with difficult 
oilfields and downstream asset swaps.  Finally, they are 
drilling for oil in the Sea of Azov with Lukoil, and he noted 
ExxonMobil was one of four candidates that approached Rosneft 
to work together on a technologically challenging (due to 
deep water) block in the Black Sea. 
 
7. (C) According to Bogdanchikov, Rosneft has an active 
relationship with Chinese firms.  He said that they have 
recently set up two joint ventures with the Chinese.  The 
downstream JV is set up to sell refined products in China but 
this is proving difficult because the price is kept 
artificially low by the Chinese government.  Bogdanchikov 
seemed more upbeat about the potential for the upstream JV, 
which was set up to jointly develop newly-licensed fields in 
East Siberia.  Rosneft also has drilled a promising well with 
the Chinese company Sinopec on the Veninsky block on Sakhalin 
Island. 
. 
COMMENT 
------- 
. 
8. (C) While some things he said did not ring true (denial of 
interest in Surgut, for example), working with no notes and 
giving us the level of detail Bogdanchikov did make it 
apparent to us that he is truly on top of his brief.  Given 
his company's stake in the BAP project, he is in a position 
to have the information to back up his comments on CPC 
expansion. 
BURNS

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