Shell and BP pump pounds 1bn into Russia

Click to follow
Europe's two biggest oil companies separately announced $1.7bn (pounds 1bn) of investments in Russia to develop the country's vast oil and gas reserves. The moves are the first by Western oil companies since Russia relaxed restrictions on foreign investment in its oil industry.

The Royal Dutch/Shell Group, the world's biggest international oil company, said it would work with RAO Gazprom, the largest natural gas company, to extract gas and 500,000 barrels of oil a day.

British Petroleum, meanwhile, the world's fifth-largest oil company, said it would pay $750m for a 10 per cent stake in AO Sidanco, Russia's fourth-largest oil company, to tap a giant Siberian gas field.

The announcements come a fortnight after Boris Yeltsin, the Russian President, repealed a law that prevented foreigners from owning more than 15 per cent of a Russian oil company and signal a new confidence among western oil companies in the economic viability of Russian oil projects.

Amoco Corp of the US Chicago and ENI of Italy have expressed interest in such projects. Exxon Corp, though, is waiting to see whether the government rethinks its decision to cancel the company's bid on a 2 billion-barrel project.

BP will make its investment formal in a signing ceremony at Prime Minister Tony Blair's office today.

Shell is buying $1bn worth of bonds from RAO Gazprom. It will also join with Gazprom and AO Lukoil Holding to consider a bid for RAO Rosneft, the last large remaining state-owned oil company up for sale.

Russia's lifting restrictions on foreign investment in oil gives big western companies a freer hand in bidding stakes in state-controlled companies set to be sold in the coming months such as Rosneft, AO Lukoil Holding, AO KomiTEK, AO East Siberian, AO Siberian & Urals Oil & Gas Chemical Co. and AO Norsi-oil. Competition for Rosneft, the 10th largest oil producer in Russia, is heating up even before the Russian government sets the auction conditions. The government wants to promote competition because it wants to get the highest possible price and help plug a gap in the federal budget.