Gazprom Neft, Shell to set up new Arctic hydrocarbons JV

Moscow — Gazprom Neft and Shell have agreed to set up a joint venture to explore for and develop hydrocarbons on the Gydan peninsula in the Russian Arctic, Gazprom Neft said July 21.

The JV will carry out exploration and development work at the Leskinsky and Pukhutsyayakhsky license blocks. Upon completion of the deal each partner will hold a 50% interest in the joint venture. The companies plan to close the deal, which is subject to corporate and regulatory approvals, by the end of the year.

Gazprom Neft said that tough market conditions this year were not affecting its plans for cooperation and development in the region.

"Exploration of the Gydan blocks is among Gazprom Neft's strategic objectives, so changes in the market conditions have not affected our plans," Vadim Yakovlev Deputy CEO for exploration and production at Gazprom Neft said, according to the statement.

"In the event of geological success, a new large hydrocarbon province will appear on the peninsula," he added.

Gazprom Neft is a major developer of Russia's Arctic resources at projects including Novy Port and offshore Prirazlomnoye. It is also developing the East Messoyakha field with Rosneft. Arctic projects accounted for around 30% of Gazprom Neft's oil production in 2019, the company said previously.

Russia is prioritizing Arctic development despite high costs, logistical challenges and increasing concerns about the impact of climate change on oil and gas infrastructure in the region.

Cederic Cremers head of Shell, Russia, added, "Despite the economic uncertainties and pressure on our industry, Russia remains a country of strategic focus for Shell. We welcome the expansion of our cooperation with Gazprom Neft, our reliable and highly professional long-term partner," he said in the statement.

Shell is expanding its footprint in Russia despite Western sanctions introduced in 2014, which have complicated Western majors' investments in oil and gas projects in the country. It holds a stake in oil JV Salym Petroleum with Gazprom Neft and is a partner in the major Sakhalin 2 oil, gas and LNG project.

Gazprom Neft said that to date little exploration work has been carried out at the Leskinsky and Pukhutsyayakhsky license blocks, which are far from existing transport and oil and gas infrastructure, .

The Leskinsky license block is in the Taimyr district of Krasnoyarsk Territory. It covers an area of over 3,000 square km (1,158 square miles) and contains hydrocarbons resources that may exceed 100 million mt of oil equivalent. The Pukhutsyayakhsky block covers an area over 800 square km and is in the Tazovsky district of the Yamal-Nenets Autonomous Region. Its resources are estimated at around 35 million mtoe.

Two-dimensional seismic studies have been completed on both blocks and drilling of the first well at the Leskinsky block is scheduled for 2020. Data from this well will be used to prepare a future development plan. Gazprom Neft-GEO will act as operator on exploration work at the blocks.