EXCLUSIVE: THE BATTLE FOR NATURAL RESOURCES Lukoil may be interested in acquiring the Black Sea hydrocarbon deposits owned by Sterling Resources

• The Russians of Lukoil are looking to extend their holdings to the Serpent Island area, after the Romanian state already assigned them part of the resources won in The Hague

• The officials of Sterling claim that the deposits are not up for sale and that the company has the financial resources it needs to begin production

Russian giant Lukoil is interested in taking over the exploitation of the hydrocarbon resources that Canadian company Sterling Resources Ltd. holds in the Black Sea, official sources from the energy market say.

Sterling Resources acquired the exploitation licenses in 2008, which sparked a huge scandal, especially since Tăriceanu discreetly assigned the exploitation rights to Sterling Resources in 2008, even before Romania won at the Hague the lawsuit against Ukraine which concerned those maritime oil perimeters.

Lukoil has already taken over two other offshore perimeters near the ones held by Sterling and is interested in acquiring the concessions of the Canadian company.

Sterling officials denied the possibility of assigning the exploration rights for those deposits, or the possibility of the Russian company fully acquiring the Romanian business of Sterling Resources.

Mark Beacom, the vice-president of Sterling Resources Ltd., made the following statement for BURSA: "Sterling has no intentions of leaving Romania, as it actually wishes to engage in exploration and development activities, thus developing production on the interests it holds here. Sterling considers that it can access the necessary funding in order to convert get its project approved, which will increase the value of its assets, allowing it to run exploration activities in 2011. Sterling is not negotiating with any third party concerning these offshore blocks, nor does it want to sell them via Midia Resources SRL".

In turn, the representatives of Lukoil neither confirmed nor denied their interest for these perimeters controlled by Sterling.

Contacted by BURSA, Dimitry Dolgov, the spokesman of the Lukoil group, replied with a curt "no comment" to our question concerning the interest of the Russian company in the concessions received by Sterling.

Lukoil"s interest in the deposits of the Black Sea has increased after Romania won in the Hague the right to exploit several offshore oil concessions, after a lengthy legal dispute with the Ukraine, concerning the size of the maritime area around the Serpent Island.

However, some of those perimeters are being concessioned to Russian or Ukrainian companies.

THE BLACK SEA IS RUSSIA"S OWN BACKYARD LAKE. At the end of 2009, the Romanian National Agency for Mineral Resources held the tenth round of call for tenders for awarding oil concessions, including the blocks that Romania won in The Hague in the International Court of Justice. The tenders were assessed on June 30, 2010.

The Russians of Lukoil and the Ukrainians of Vanco were awarded two of the five perimeters that Romania won in the Hague, as did Melrose Resources and Petromar. In turn, Petro Ventures was awarded only one perimeter, but one which is located close to the shore, and is not part of the area won in the Hague.

Surprisingly, Romgaz, the Romanian national gas producer, failed to get a concession of any of the perimeters during this round as well, after the Romanian authorities failed to make it a partner in the contract concluded with Sterling Resources.

The winners of the tenth round didn"t include ExxonMobil, the world"s second largest oil company, nor Repsol, a major European oil company, or the Romanian companies which participated in the call for tenders, namely Petrom or Rompetrol. The jackpot went to the Russians and the Ukrainians.

The absence of ExxonMobil from the list of winners is even stranger, since, according to the experts consulted by BURSA, the company has a special exploration technology. "Lukoil will almost certainly use equipment of ExxonMobil for its exploration activity", the quoted sources said.

THE STERLING SCANDAL. Up until recently, Melrose Resources had a partnership agreement with Sterling Resources in order to take over the operations of the concessions in the Pelican and Midia perimeters in the Black Sea. The partnership failed because the Romanian authorities dragged their feet in approving the participation of Melrose in the partnership. The Members of the Parliament, the Romanian Court of Auditors and the Investigative Body of PM Emil Boc have been investigating the way in which Sterling succeeded in securing the exploitation rights by way of a simple addendum to the contract for the concession of the oil resources in the Black Sea, under the tenure of the Tăriceanu government.

So far, however, the authorities have yet to reach a final verdict, as the prosecutors of the DIICOT (Department to Counter International Organized Crime and Terrorism) have already begun an investigation in this controversial case. In the beginning of April 2010, the report of the Court of Auditors on their probe of the Romanian National Agency for Mineral Resources (ANRM) on the matter of the oil agreement concluded with Sterling, which uncovered legal irregularities and criminal acts, was sent to the Chamber of Deputies. According to the Court of Auditors, the report on the findings, the objections of the ANRM and the answer of the investigative team were sent to the Prosecutor"s office of the High Court of Cassation. At the time, the Court of Auditors said that it would also submit the report to the Government for information purposes and for allowing it to take actions, such as making additions to the Law on Oil 238/2004 and to the methodological norms concerning the requirements for concluding oil exploration contracts.

THE GOVERNMENT POSTPONES MAKING A DECISION. Until now, the government has not made any decision concerning the concession contract concluded with Sterling Resources. On November 1st, Sterling Resources announced that it has withdrawn its request to the National Agency for Mineral Resources (ANRM), which, if approved, would have allowed Sterling to sell to Melrose a 32.5% stake in the licenses to develop the Pelican and Midia blocks in the Romanian offshore sector of the Black Sea.

Sterling Resources claims that, this rejection has affected the progress of the exploration in the other two perimeters that the company owns in the Black Sea.

400 MILLION DOLLARS IN FINANCING. Sterling claims that it will continue its operations in the other concessions together with PetroVentures Europe BV and Gas Plus International BV.

In its report published in March, Melrose Resources showed that research uncovered new gas reserves with an estimated volume of 345 billion cubic feet (the equivalent of approximately 9.6 billion cubic meters) in the Ana and Doina deposits of the Sterling concessions in the Black Sea. An independent audit revealed that there are new gas reserves of 247 billion cubic feet in the Ana deposit and 98 billion cubic feet in the Doina deposit.

Melrose estimated that the development and the exploitation of the deposits will require a total investment of approximately 402 million dollars. In order to participate in the development of the deposits, Melrose entered advanced negotiations with several banks to secure its share in the project. If the Romanian authorities had approved the development and the exploitation of the deposits starting with 2011, then gas extraction and sale could have begun at the end of 2012, with a daily output of 110 million cubic feet/day in the first three years of production. The development process involves the installation of a minimum of two platforms connected to a processing point located onshore, via a pipeline with a length of 110 km.