Total Looks to China to Finance Russian Gas Project -- 2nd Update

By Selina Williams 

French oil major Total S.A. on Monday said it was in talks with Chinese banks to help fund a major natural-gas project in Russia in a move to get around tightening Western sanctions over Ukraine.

Chief Financial Officer Patrick de la Chevardière said the company was looking at financing its share in the $27 billion Yamal liquefied natural-gas project in Chinese yuan, Russian rubles and euros.

"The effect of U.S. sanctions was that Yamal LNG will be prevented from raising any dollar financing," Mr. de la Chevardière told a news briefing in London. Total is developing the onshore Yamal project in Russia's Arctic north with independent Russian gas producer OAO Novatek and China's CNPC.

Total would first look for financing for Yamal from export credit agencies such as France's Coface and Italy's Sace and then add Chinese and Russian finance, Mr. de la Chevardière said.

Total's move comes as U.S. oil giant Exxon Mobil Corp. said last week is it winding down its drilling campaign in the Russian Arctic because of sanctions announced by the U.S. and European Union this month. The setback to Exxon's $3.2 billion deal to explore for oil with Russia's Rosneft in the Arctic could represent the biggest corporate casualty of sanctions so far.

Earlier this month, Russian officials said that restrictions on western technology for drilling in hard-to-reach areas such as the Arctic Sea could hurt future oil production if they persist.

Russia relies on oil and gas to provide the bulk of its revenues and Yamal is vital to Kremlin plans to increase the country's share in the fast-growing global LNG market.

Total is in turn relying on Yamal, which is expected to start up in 2017, to provide a chunk of the French's company's future production growth. Yamal is estimated to hold proven reserves of 800 million barrels of oil equivalent.

U.S. and EU sanctions imposed so far include financing limits on some banks and energy companies and restrictions on technology transfers and equipment to develop deep-water and offshore Arctic oil and onshore shale oil. They come on top of asset freezes and travel bans on dozens of officials and tycoons, including one of Novatek's biggest shareholders-- Gennady Timchenko.

Yamal is a complex project requiring western technology that Russia lacks, such as the liquefaction plant that will supercool the gas into liquid form so it can be transported around the world in giant tankers.

The project has so far managed to proceed despite the sanctions because the companies involved have been able to pursue other avenues for finance.

Mr. Chevardière said it was too early to say how the latest U.S. sanctions, which include a ban on western companies supporting the activities of a number of Russian oil and gas companies, will affect Total's venture with Lukoil to develop the Bazhenov shale-oil formation in western Siberia where Western know-how will also be vital.

Total Monday also reduced its medium-term production forecast. The company now expects to produce 2.8 million barrels of oil equivalent a day in 2017, compared with its previous forecast of 3.0 million, because of delays on projects and additional asset sales.

Write to Selina Williams at [e-mail]