Rosneft struggles to grow as sanctions hit Russia's oil champion

* Sanctions hitting all credit lines

* Rosneft having to cut staff and sell prized field to China

* Needs huge spend on new fields, modernising old refineries

* Can tap Russia state resources, Chinese credit

* But access to Western technology - cut off - is vital

By Dmitry Zhdannikov, Vladimir Soldatkin and Katya Golubkova

LONDON/MOSCOW, Sept 9 (Reuters) - The Kremlin's prized oilfirm Rosneft is cutting staff and production and selling stakesin Siberian fields in the strongest evidence to date thatWestern sanctions are hurting what was the world's fastestgrowing oil firm in recent years.

The sanctions imposed on Russia by the United States andEurope in response to its military action in Ukraine have cutRosneft's access to Western financing and technology,complicating the servicing of its $55 billion debt and closingthe way to cutting-edge industrial science it needs to keepdeveloping its energy resources.

Few doubt that Rosneft will be able to withstand thepressure medium-term - its earnings amount to $30 billion a yearand billions more are still available via Chinese credit linesand Russian state coffers in case of emergency.

But the world's biggest listed oil producer - which producesmore oil than OPEC members Iraq or Iran - faces unprecedentedchallenges to its long-term expansion and modernization plans.

Last week Rosneft said it would cut staff to reduce costs:Kommersant business daily said Rosneft's Moscow headquarterswould see cuts of up to 25 percent from the current 4,000.

These would be the first significant job losses at a companythat swelled via the acquisition of rivals such as YUKOS, pushedinto bankruptcy some ten years ago by the government ofPresident Vladimir Putin.

Since then Rosneft's output has risen 10-fold to exceed 4million barrels per day or four percent of global supply. Butlast week it reported a 1.3 percent production drop in August,as production in West Siberia regions declines.

The firm, which alongside gas monopoly Gazprom isa top contributor to the Russian budget, needs to invest heavilyto bring new east Siberian fields online - a costly endeavournow made more difficult by the sanctions squeeze.

In a sign of the challenge such a project now presents,Putin said last week Rosneft would welcome China buying a stakein the prized Siberian Vankor field. It was a major about-turngiven the Kremlin's long resistance to allowing its powerfulneighbour access to such deposits.

"Rosneft's decision to offer China a stake in the megaVankor oil field in East Siberia signals that Moscow'sbargaining position has been further weakened by sanctions andthat it needs the capital infusion," said Emily Stromquist,analyst at Eurasia.

"CREDIT STOPPED"

Rosneft needs to invest more than $21 billion annually until2017 to launch new fields and upgrade refineries.

It also needs to repay $12 billion by year-end and another$17 billion next year, after it borrowed heavily to buy rivalTNK-BP for $55 billion last year - a deal that included BP taking a 20 percent stake in Rosneft.

Rosneft should be able to access some of the money it needsfrom short-term credit lines via Western banks as the UnitedStates sanctions only prohibits them from providing loans withmaturity longer than 90 days.

But with the European Union expected to impose similarlending bans soon, Rosneft boss Igor Sechin under personalsanctions owing to his closeness to Putin and any resolution tothe Ukraine crisis a long way off, all Western lending toRosneft has in fact stopped, finance and industry insiders say.

"The credit has stopped. All conversation has become purelytheoretical. People fear everything is following the patterns ofthe Iranian (sanctions) scenario when credit and then oil flowswere getting progressively hurt," said an executive with aWestern trading house and a major buyer of oil from Rosneft.

Over the past year, BP and trading houses Vitol, Glencore and Trafigura provided Rosneft with $20 billion worthof loans syndicated by banks and guaranteed by oil exports.

But Rosneft's attempts to borrow more from them in recentmonths have stalled or been drastically curtailed because thebanks refused to syndicate new deals.

Rosneft CEO Sechin was forced to ask for $40 billion instate help from one of Russia's sovereign wealth funds and PrimeMinister Dmitry Medvedev said the company could get it.

"The company needs to maintain its production levels,because Rosneft is a major source of tax revenue," Medvedev toldVedomosti business daily on Monday. "As such, we should help itmaintain its level of investment".

A Rosneft source told Reuters the company had no plans toborrow for the next 12-18 months and that credit lines offeredby China's state oil firm CNPC meant the company had enoughliquidity to see it through.

"We are planning to cut debt further without reducing capex.We need to maintain huge investments to launch new East Siberianfields. After 2017 capex will drop," the source said.

MONEY BUT NO KNOW-HOW

Though the Russian state and Chinese allies may keep moneyflowing to Rosneft, they cannot supply vital technology.

Rosneft said last week it planned to replace all equipmentand technology imports from the West as the U.S. and EUsanctions halted all trade with the firms upon which it usuallyrelies for such essentials.

In the meantime however it will struggle to find what itneeds to develop shale and deep water Arctic oil because Russiahas made little progress in building its own services sector.

Just last May, Energy Minister Alexander Novak asked Putinto boost funding of domestic equipment producers because aquarter of all equipment used in oil output enhancement wasimported.

Russia is particularly dependent on the West for catalysts,refining equipment and gas turbine parts, meaning complicatedrefinery modernisation works are seen almost impossible toachieve without the access to Western know-how.

Rosneft plans to launch 10 new fields by 2020 in a bid toincrease its combined oil and gas output by a third to 6.4million barrels of oil equivalent per day. That plan looks setto be severely tested.

"Rosneft has a lot of cash. Its problems are long-term andstrategic," said a source at a Western bank that includesRosneft among its clients. "Its growth model is challenged." (Reporting by Dmitry Zhdannikov; Editing by Sophie Walker)