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Chechnya to acquire rights to its own oil from Russian state oil company

28 February 2017
Oil extraction in Chechnya (grozneftegaz-chr.ru)

Rosneft — the majority state-owned Russian oil company — will sell its Chechen subsidiary, Grozneftegaz, to Chechnya. According to Russian daily Kommersant, the value of the transaction is estimated at ₽12.5 billion ($370 million). Under the agreement, Chechnya will receive a majority 51% of shares in the company, which focuses on oil and gas extraction in Chechnya.

The sale has yet to be signed off on by Russia’s Ministry of Economic Development; however, according to Kommersant, the transaction has already been decided and finalising it is only a matter of time.

If Chechnya acquires a controlling stake in Grozneftegaz it will receive the full rights to mineral resources in the republic, and development of new oil and gas fields. oil production in Chechnya has been on the decline in recent years. According to Grozneftegaz’s website, in 2013, 3.9 million barrels of crude oil was extracted; by 2015, the figure had dropped to 2.9 million barrels.

The final transfer of Grozneftegaz to Chechnya may occur before the end of this year. The Chechen authorities have pushed for many years to take control of the republic’s oil extraction. Grozny has accused Grozneftegaz of not carrying out exploration of new deposits and of predatory use of fields opened in the Soviet era.

A former employee in Chechnya’s oil industry, Magomed Arbiyev, argues that Chechnya may soon run out of oil entirely.

‘The Chechen oil complex is not profitable for Rosneft now. That is, this transaction is not what it might have been before. Over the past 10–15 years, production has dropped by more than four times. The company has literally “sucked” everything it could from the deposits, without worrying about the future. 90% of wells were subject to flooding and will soon become unusable’, Arbiyev told OC Media.

According to Konstantin Simonov, the general director of the National Energy Security Fund, Chechnya can’t currently afford an expensive purchase such as Grozneftegaz, which is why it is possible that the federal government will have to seek funds to help Chechnya go through with the acquisition.