The project kicked off in September 2004, when Rosneft and the Korea National Oil Corporation (KNOC) signed a memorandum of understanding, agreeing to jointly develop an offshore sector of the West Kamchatka shelf in the Sea of Okhotsk. In February 2005, Rosneft and KNOC inked an interim financial agreement, under which KNOC would take part in the development of the prospective sector of the shelf for which Rosneft holds a license. The companies have undertaken to carry out seismic exploration and probe drilling of three wells by 2008. The agreement also provided for the establishment of a joint venture, but KNOC eventually bought a 40-percent stake in the project operator West Kamchatka Holding B.V. from Rosneft. The latter holds 60 percent in the management company.
Throughout the seismic exploration work, there were no reports as to what even a tentative sum of investment in the project was. The first phase was valued at $150m, with the rest to be determined after the results of seismic exploration were in. According to Rosneft's data, the shelf's potential reserves are estimated at 1bn tonnes (Sakhalin-1's stood at 324m, and Sakhalin-2's at 184m tonnes). Speaking at a meeting dedicated to Kamchatka's social and economic development on Wednesday, Bogdanchikov announced a preliminary budget of the Kamchatka project, expected it to reach $24bn.
According to the Russian state oil company's chief executive, $90m has been invested in the project since its launch. Another $270m-$300m will be spent on exploration drilling in 2008, while further investment is to be determined depending on the successfulness of the wells. "While the shelf's resources are estimated at 3.8bn tonnes of hydrocarbons, we cannot at this stage say how much of them is accounted for by oil, and how much is natural gas," Bogdanchikov indicated. Rosneft reiterated that the Korean partner would be financing the project up to the point of its commercial launch, while the Russian company will be entitled to a certain share of proceeds as soon as commercial production starts at the shelf, not after KNOC's costs have been paid off.
Experts predict that the development of Kamchatka will be one of the industry's largest projects, though their opinions on the size of the budget vary. Some say that potentially, $24bn can be too great a sum for the two companies, and that they may be forced to involve other partners on a participatory basis. Others believe the amount to be fairly modest, citing Sakhalin-1's budget of nearly $13bn, whereas its deposits are considerably smaller.
According to observers' estimates, KNOC could invest as much as $5bn in the project before commercial production even starts. Meanwhile, Rosneft will be able to reduce its huge debt load considerably, which will give the company with the biggest oil stockpile additional leverage when discussing how the Korean company would be compensated for its costs. Analysts say that amid rising oil prices, the West Kamchatka shelf can be considered one of the most profitable contracts in the Russian oil sector's history.