Russians coming … perhaps
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Oligarch takes foothold in small, fast-moving Canadian producer, filling void
for Petroleum News
As Russia rolls out its grand strategy to seize a vital stake in supplying global energy, nothing is too small to be ignored.
A year after the Russian government pushed through legislation creating US$300 billion in new incentives to build ports, facilities, pipelines and oil and natural gas developments in the Arctic region, moving its projects even closer to the Beaufort Sea, what might seem like a distantly related move occurred in Canada.
Led by Russian oligarch Igor Makarov, Swiss-based ARETI Energy acquired a 21% stake in Spartan Delta, a lively Calgary-based gas producer.
Regulatory filings revealed that ARETI gained 23.7 million shares in Spartan, fueling rumors that prominent Russian investors have been probing deals in the Canadian oil patch that is desperately in need of outside capital for an industry that has experienced a relentless decline since the 2014 oil price crash.
The Financial Post disclosed that a day after Makarov’s stake in Spartan was revealed on March 22, a filing on the System for Electronic Disclosures by Insiders, SEDI, showed the Russian sold 164,683 Spartan shares at an average price of C$3.83 per share for proceeds of C$631,411, leaving him with his 21% stake.
Neither ARETI nor Spartan have been forthcoming in discussing their strategies beyond ARETI’s broad website comment that it is “focused on investments in the oil and gas sector.”
Fast trackSpartan has been on a fast track, scooping up a flood of distressed Alberta gas assets, some resulting from an exodus of international companies, notably BP, Royal Dutch Shell, Norway’s Equinor, France’s Total.
Its deal making has included an C$87 million takeover a year ago of insolvent Bellatrix Exploration, boosting its output from 200 barrels of oil equivalent per day to 25,000 boe per day, while the company’s share value rocketed over the past year by 7,800%.
More recently Spartan has pulled two more companies into its fold - Cequence Energy and Inception Exploration, whose controlling shareholder was Makarov, estimated by Forbes magazine to have a net worth of US$2.1 billion.
The Financial Post noted that ARETI is an anagram of Itera Oil and Gas, which was established by Makarov in 1992 to supply natural gas from Turkmenistan to former USSR countries and Eastern Europe.
Having grown to become the largest private oil and gas company in Russia, Itera was sold to state-owned Rosneft in 2013, after which Makarova renamed his remaining companies to ARETI.
It will likely take more transactions to establish whether Makarov is just shuffling his minor holdings in Canada or has grander visions in his sights, especially in the Arctic, where plans for the Beaufort Sea have been put on ice.
Russia’s Arctic plansRussia’s plans for its slice of the Arctic Ocean include a doubling of maritime traffic in the Northern Sea Route, giving a lift to the giant state-owned enterprises such as Gazprom, Lukoil and Rosneft to embark on increased offshore exploration and development, filling the void created in Canada and the U.S.
The Russian government is offering tax incentives for Arctic developments, including a reduced 5% production tax for the first 15 years of developments, with ventures in the eastern Arctic qualifying for a 12% tax cut.
Massive incentives for infrastructure are seen as a key to opening up remote resources plays estimated at 44 billion barrels of oil in Eastern Siberia and the Chukchi Sea, while sending more goods through the Northern Sea Route could wipe thousands of miles off that journey.
In late November, Rosneft announced it was starting development of the massive Vostk Oil project to create a “new oil and gas province” in Eastern Siberia at a cost of US$170 billion, aiming to start deliveries of 600,000 bpd through the Northern Sea Route in 2024, building to 2 million bpd.
Tim Pickering, president of Calgary-based Auspice Capital Advisors, told the Canadian Energy Center in December that Russia and Saudi Arabia will do “what’s right (in oil production) for the economics and security of their nations.”
At the same time, Canada will pay the price for what Eric Nuttall, a partner with Toronto-based Ninepoint Partners, said is “unquestionably a negative bias towards (the Canadian) energy sector.”
In the view of Pickering and other analysts, the Vostok project is a clear sign that Canada is passing up a huge opportunity to supply responsibly produced oil to meet a growing world demand, but the entry of Makarov could be a tentative sign that outsiders are not prepared to erase Canada from their list of prospects.