Russia’s Rosneft and Lukoil have locked horns over the cost of delivering oil from an Arctic joint project to market.
Rosneft holds a 74.9% stake in Bashneft-Polyus, the owner of the Trebs and Titov oilfields in the Nenets region. The remaining 25.1% share is held by Lukoil. Oil produced at Trebs and Titov is pumped to Lukoil’s nearby Varandey terminal, where it is loaded onto tankers for export.
Rosneft filed a complaint on September 28 with Russia’s Federal Antimonopoly Service (FAS), arguing that the price Lukoil charged for handling oil at Varandey was excessively high. Lukoil rejects this claim, and has submitted documents to the regulator justifying its tariff regime.
Lukoil charged an average rate of 2,150 rubles per tonne (US$4.38 per barrel) for handling crude at Varandey in 2017, down 15% year on year. According to Russia’s RBC, Rosneft is looking to reduce the rate to only US$18 per tonne (US$2.45 per barrel).
Mid-sized oil producer Bashneft won a licence to develop Trebs and Titov in 2010, inviting Lukoil to join the project the following year. The pair achieved first oil towards the end of 2013. Rosneft then took over from Bashneft when it bought the company in late 2016.
According to its CEO, Vagit Alekperov, Lukoil has suggested several ways of resolving the dispute with Rosneft. Under one proposal, the company would take control of all oil produced at Trebs and Titov and supply Rosneft with an equivalent volume from its fields in the Komi region in return, Alekperov told Russia’s Vedomosti newspaper. Alternatively, Lukoil could calculate the price formula for handling oil at Varandey based on the cost and level of production at the fields.
Rosneft has spurned these proposals, however. “We have not accepted the specified options that were presented to us,” a company representative told Vedomosti. The spokesperson explained that the FAS’ review of the situation would create “an objective basis for negotiations.”
Bashneft-Polyus generated 60.9 billion rubles (US$909 million) in revenues last year, but booked a net profit of only 2.1 billion rubles (US$31 million). The Varandey terminal enjoyed much greater margins, posting 18.4 billion rubles (US$275 million) in revenues and 14.4 billion rubles (US$215 million) in net income.
The Trebs and Titov fields yielded 1.9 million tpy (38,200 bpd) of oil in 2017, compared with 40,000 bpd in 2016 and 28,000 bpd in 2015. In September last year, Rosneft announced plans to scale back production at the fields in order to comply with Russia’s agreement with OPEC on output limits.