Daily analyst comments

On June 15, the Russian government signed a resolution to issue Gazprom licenses, without competition, to explore and develop hydrocarbon deposits within the Sakhalin-3 project and on the Western Kamchatka shelf area, its press service said. The announcement has ended a dispute between Rosneft and Gazprom, which erupted in 2H 2008. An assessment of commercial reserves within the areas is yet to be made; however, in 2006, the expected reserves on the Western Kamchatka shelf were estimated at 1.8 billion tons of oil and 2.3 trillion cubic meters of natural gas.

Initially, the licenses for these fields were held by Rosneft, in partnership with Korean KNOC. As the validity of the licenses was to expire at the end of 2008 and their renewal was discussed, it turned out that Rosneft had not met the minimum exploration and production requirements within these areas. Following a prolonged probe into the matter, these fields were turned over to Gazprom on condition that Rosneft be compensated for its exploration expenses and KNOC be taken on as a partner on the same terms on which the company joined the project with Rosneft.

There was uncertainty over who would win in the dispute until the last moment and both Gazprom and Rosneft had chance to defend their rights to the fields. Although Gazprom has won the case, development of these areas is tricky and will take time. Given that Gazprom has already delayed the opening of some key Yamal fields, its newly-gained Sakhalin fields are unlikely to bear fruit in less than three years.

In the short term, this news may act as an upside driver for Gazprom stock valuations. However, we keep our target price for Gazprom shares unchanged at USD 11 per share until the hydrocarbon reserves of the new fields are confirmed.