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Financial Mirror (Cyprus) - - FRONT PAGE -

Ma­jor oil and gas deals signed over the past 15 months be­tween Rus­sia and China will be credit pos­i­tive for the Rus­sian com­pa­nies in­volved, Moody’s In­vestors Ser­vice in a re­port.

The deals will pro­vide them with op­por­tu­ni­ties for growth and ac­cess to new sources of fund­ing, with the po­ten­tial to ex­pand th­ese re­la­tion­ships in the fu­ture, the rat­ing agency said, adding they will also re­duce Rus­sia’s heavy re­liance on Euro­pean en­ergy mar­kets where the coun­try is ex­posed to sanc­tions and com­pet­i­tive risks.

The deals were signed by Rus­sia’s OJSC Oil Company Ros­neft, OJSC Gazprom and OAO No­vatek with the China Na­tional Pe­tro­leum Cor­po­ra­tion.

“Rus­sia’s ef­forts to di­ver­sify its en­ergy ex­ports, are aligned with China’s de­sire to se­cure new oil and gas sup­plies to meet its large and fast-grow­ing en­ergy needs,” said Ju­lia Pribytkova, a Moody’s se­nior an­a­lyst.

“Gazprom’s deal, which is val­ued at $400 bln, will also pro­vide a launch pad for the company’s full-scale di­ver­si­fi­ca­tion into the Asia-Pa­cific re­gion at a time when it is fac­ing sales pres­sure in Europe,” con­tin­ued Pribytkova.

In its re­port, Moody’s noted that China’s GDP growth rate, although slow­ing, is still an­tic­i­pated to be much higher than Europe’s, where de­mand for Rus­sian nat­u­ral gas re­mains sub­dued in the wake of the 2009 eco­nomic down­turn. Rus­sia is well-placed ge­o­graph­i­cally to fill the gap be­tween China’s do­mes­tic oil and gas pro­duc­tion and de­mand via the de­vel­op­ment of its vast, largely un­tapped East Siberian re­serves.

In ad­di­tion, Moody’s noted that China is help­ing to fi­nance the de­vel­op­ment of Rus­sia’s oil and gas in­dus­try. Long-term sup­ply con­tracts with guar­an­teed off­take vol­umes, eq­uity deals and ac­cess to fund­ing from Chi­nese fi­nan­cial in­sti­tu­tions will fa­cil­i­tate the de­vel­op­ment of new pro­duc­tion and trans­porta­tion in­fra­struc­ture re­quired to sup­ply the Chi­nese mar­ket. This al­ter­na­tive source of fi­nanc­ing is par­tic­u­larly im­por­tant for Ros­neft in light of the US sanc­tions as the company faces the great­est ma­tu­ri­ties by end-2015 in the sec­tor, which it ex­pects to cover in part with oil pre­pay­ments from its con­tract with CNPC.

Moody’s also projects that Rus­sia’s turn east­wards will also have its chal­lenges, as China’s abil­ity to put pres­sure on prices and the sheer scale of the re­quired in­vest­ments could weigh on the fu­ture prof­itabil­ity of Rus­sia’s oil and gas sec­tor.

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