Chinese banks will finance the 3.5 MMBOPD project with heavy oil upgraders

Calgary-based Genoil Inc. (ticker: GNOLF), provider of upgrading technology for petroleum processing, has signed a letter of intent (LOI) for $50 billion worth of projects in Russia and Chechnya.

The engineering company said it will develop oil fields and construct clean technology upgraders, refineries and pipelines in Russia in a press release Wednesday. The project is designed to produce 3.5 MMBOPD, adding to Russia’s output at a time when the country is producing at a post-Soviet high.

Genoil’s technology uses hydroconversion to remove sulfur, nitrogen and metals from crude oil, increasing operating efficiencies by 75%, according to the company.

The financing for the project will be provided in full from Chinese banks to the Russian companies involved. Russia has been increasingly turning to China for funding of oil and gas projects, like the Yamal LNG project, as tensions between the country and traditional capital markets in the West remain strained. Russia’s pivot to Asia has seen China buying increasing volumes of crude from the country, with Russian volumes edging out Saudi Arabia several times this year.

Deal includes building new refinery capacity

As part of the LOI, Genoil will be responsible for the design and construction of six million tons per year of new refinery capacity in Chechnya. To facilitate this, Genoil will organize a consortium of Chinese engineering and services companies to provide all the necessary support and project guarantees, it said in the press release. In addition to project guarantees, Genoil will arrange for a leading Chinese insurance company to insure the entire project.

The LOI has been signed by the President of the Board of Directors of Grozneft, a former official in the administrative department of the Russian Federation.

“The Russian Government and the Ministry of Fuel and Energy of the Russian Federation, as well as other required ministries and departments will give their full support to this project to ensure timely completion,” Genoil said in the release. The project will be listed in a trade agreement, pact or cooperation agreement between Russia and China.

Genoil says its goal is to build 500,000 bpd of upgrading capacity annually. Each project would have an estimated licensing fee income of 15 % of the total profit or a minimum of $ 3.00 per barrel.

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