OJSC ALROSA is planning to buy from VTB Group companies 90% of shares in CJSC «Geotransgaz» (hereinafter Geotransgaz) and 90% of stakes in LLC «Urengoy Gas Company» (hereinafter Urengoy Gas Company).
Geotransgaz and Urengoy Gas Company are engaged in the development and production of gas and condensate in Beregovoy and Ust-Yamsoveysky license areas in Yamalo-Nenets Autonomous District. On the results of the audit of reserves performed by DeGolyer & MacNaughton in the middle of 2011, the total proved and probable reserves of both companies exceed 140 billion m3 of natural gas and 20 million tons of condensate (altogether over 1 billion barrels of oil equivalent).
ALROSA sold these assets to VTB Group companies in the conditions of the crisis in the world diamond market and total lack of rough diamond sales. The objectives of this deal were to restructure the Company’s debt portfolio and to secure development of gas assets.
ALROSA committed all the funds received from the sale of Geotransgaz and Urengoy Gas Company to repay liabilities in the scope of its anti-crisis program.
Over the period from the purchase of the assets in October 2009, VTB Group carried out considerable amount of work on development of these projects that required additional investments exceeding RUB 5 billion. As a result of operations conducted on the deposits, the proved reserves of Geotransgaz and Urengoy Gas Company, according to the audit of reserves performed by DeGolyer & MacNaughton in 2011, grew some 80% as compared to the data received during the previous audit of reserves by DeGolyer & MacNaughton in 2007. In particular, the works related to survey, drilling, and development of Beregovoy license area allowed preparing the deposit to start commercial operation in the end of 2011, and secure significant potential for production growth.
Pursuant to the terms of the transaction of October 2009, the companies — purchasers of these assets have a repurchase option to be exercised in 2012. However, in connection with the start of commercial operation of Beregovoy license area and the advanced stage of development of Geotransgaz and Urengoy Gas Company deposits, ALROSA made a decision on the strategic expediency to repurchase Geotransgaz and Urengoy Gas Company from the VTB Group companies at this stage.
The Geotransgaz and Urengoy Gas Company development project has a great potential to create additional value for ALROSA’s shareholders. OJSC ALROSA is considering ways of both independent development of the project and involvement of a strategic investor.
This transaction will not result in the increased current corporate debt.
VTB Group acts as an exclusive financial adviser of OJSC ALROSA in working out the strategy of developing gas assets and selecting potential strategic investors.