Small Russian independent beats oil giants in field auction

31 August 2016, Week 34 Issue 896

A little-known oil producer based in Russia’s Udmurt Republic has won a licence to develop the Boralahsky deposit in the Sakha Republic, after fending off rival bids by Rosneft, Novatek and Surgutneftegaz.

The Russian Ministry of Natural Resources said last week that UDS-Energy had agreed to pay almost 2.8 billion rubles (US$43 million) for the permit in an auction on August 24. This is roughly 161 times more than the original asking price of 1.7 million rubles (US$26,000), according to the Federal Agency for Subsoil Use (Rosnedra). The agency noted that eight companies had taken part in the auction.

A source at one of the participating firms told Vedomosti there was fierce competition for the licence, adding that Rosneft was the last to drop out in favour of UDS-Energy. Boralahsky is situated nearby to several fields which the oil giant is already developing, a representative of the Natural Resources Ministry told the newspaper.

If UDS-Energy is unable to pay for the licence within a month of it being registered, another auction will be held. However, the representative told Vedomosti that there was no reason to think that the company will fail to meet the deadline.

To date, none of the companies involved have commented on the auction.

According to Vedomosti, Boralahsky is estimated to hold 165 billion cubic metres of gas and 10.2 million tonnes (748 million barrels) of oil, although these reserves are not proven. The site is reportedly near to the Eastern Siberia-Pacific Ocean (EPSO) pipeline and the planned route of Gazprom’s Power of Siberia gas pipeline to China. Raiffeisenbank analyst Andrei Polishchuk commented to Vedomosti that companies in Russia typically pay US$0.50-1 per barrel of resources, and therefore it is likely that UDS-Energy is banking on the site containing around 51-106 million barrels of oil equivalent.

According to the newspaper, UGS-Energy is 100% owned by Alexei Chulkin, the deputy of the State Council of Udmurtia Republic. Founded in 2014, the company owns a mixed portfolio of oil assets, real estate developments, restaurant chains and construction firms. It owns several oilfields in Udmurtia Republic and Perm Krai, which together produced 180,000 tonnes (3,600 barrels per day) of oil in 2015.

Competition for new licences is heating up in Russia.

In December last year, Rosneft won the rights to the Kungasalahskoye field in Krasnoyarsk Krai, agreeing to pay 1.1 billion rubles (US$17 million), up from an original asking price of 9.1 million rubles (US$140,000). In June, Gazprom snapped up licences for the Layvozhskoye and Vaneyvisskoye fields in Nenets Autonomous Okrug, paying three times the opening bid.


Joseph Murphy

Edited by

Joseph Murphy


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