Novatek Aims to Reduce Stake in Arctic LNG Project by Mid-Year

OAO Novatek, the largest shareholder of a project to build a liquefied natural-gas plant in Russia’s Arctic, plans to accelerate the sale of a stake in Yamal LNG as U.S. sanctions limit the project’s financial options.

Novatek, which has been in on-and-off talks to sell about 9 percent out of its 60 percent stake in Yamal LNG since 2013, intends to complete the negotiations by mid-2015, the company’s chairman, Leonid Mikhelson, told reporters at the plant’s future site near the Arctic Kara Sea. Total SA and China National Petroleum Corp. are already shareholders.

“We are aiming to complete the talks before opening external financing,” Mikhelson said, declining to name the potential buyers. “We don’t look into reducing Novatek’s stake below controlling.”

U.S. energy sanctions introduced last year targeted Novatek and its subsidiaries, blocking the companies’ access to long-term U.S. financing and threatening the $27 billion Yamal LNG project. Novatek had held talks with Asian companies over buying 9.9 percent in the project, yet after the Russian government agreed to provide financial support to the project Mikhelson said he saw no need to continue the negotiations.

Novatek, Total and CNPC expect to start output at the LNG plant in 2017 and bring it to the full capacity of 16.5 million tons a year in 2021. Total and CNPC hold 20 percent each in the project.

Limited Options

U.S. sanctions have limited Novatek’s options to find a new shareholder in Yamal LNG, Andrey Polischuk, an oil and gas analyst at Raiffeisenbank, said by phone from Moscow.

“Given the sanctions, there are few options for Novatek,” he said. “The company may be holding talks with investors from India, China or, less likely, from Vietnam.”

Polischuk didn’t rule out that the Russian state may offer additional support to the LNG project by buying the minority stake through a state-owned financial institution.

The sanctions have prevented the full financing of the Yamal LNG project even as construction continues at the project.

“If we did not have this question of sanctions, the financing would have been done already,” Total Chief Executive Officer Patrick Pouyanne told reporters at the plant’s site.

External financing is set to cover around 65 percent of Yamal LNG’s total capital costs, Mikhelson said, confirming earlier media reports. The project’s shareholders have already invested over $10 billion in the project, he said.

“The Chinese side is expected to provide the larger part of the necessary project financing,” Mikhelson said.

Chinese Investors

Total, jointly with Novatek and CNPC, is holding talks with Chinese investors to raise $10 billion to $15 billion for the project, Pouyanne said, clarifying an earlier report by the Wall Street Journal.

European and Asian export credit agencies may provide $5 billion for the LNG project, with French institutions looking to lend about $3 billion of the total, according to Mikhelson and Pouyanne.

Should the first train of the LNG plant come online in 2017, the project is set to repay the loans in the 2020s and the 2030s, Mikhelson said.

The Russian government in December approved 150 billion rubles ($2.85 billion) in funding from the National Wellbeing Fund.

The Yamal LNG project targets mainly Asian markets, with around 96 percent of future output already sold under long-term contracts.

Total has no plans to buy an additional stake in Yamal LNG or in Novatek, in which the French company holds 18.2 percent, Pouyanne told reporters.

“We have a big involvement in Russia, through Novatek, through Kharyaga, through Yamal LNG and Termokarstovoye, and we consider it’s a good stake for the time,” Pouyanne said.

Total holds 40 percent in the onshore Arctic Kharyaga project and, jointly with Novatek, develops Termokarstovoye, in which it holds 49 percent.

Total, which initially planned to increase its stake in Novatek to 19.4 percent, stopped buying the Russian company’s shares in July as relations between Russia and Europe worsened over the crisis in Ukraine.

Russia currently exports about 10 million tons a year of liquefied gas from the Sakhalin-2 plant in the Far East, the country’s only LNG facility majority-owned by gas producer OAO Gazprom.

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