Reuters: UPDATE 2-Russia pledges to check all oil firms amid Shell row

Mon Oct 16, 2006 12:23pm ET
By Mikhail Yenukov and Tanya Mosolova

MOSCOW, Oct 16 (Reuters) – No big oil firm in Russia will be spared from a campaign of environmental inspections in coming months, officials said on Monday, a move analysts said may be designed to shade attacks on a Shell-led (RDSa.L: Quote, Profile, Research) project.

Russia’s Natural Resources Ministry said on Monday it had asked the Federal Tax Service to provide information on 398 licences held by Russia’s top oil firm LUKOIL, following a threat to withdraw 20 licences last week.

And the state ecological agency RosPrirodNadzor, part of the ministry, said it would soon examine gas monopoly Gazprom (GAZP.MM: Quote, Profile, Research) and complete checks of the state oil firm Rosneft’s (ROSN.MM: Quote, Profile, Research) production facilities on the island of Sakhalin.

“We are warning other companies: if you have arrangements with local authorities and think that you are far from Moscow… you are at serious risk,” said Oleg Mitvol, deputy head of RosPrirodNadzor.

“We think that if a company has neither the wish, nor the money, nor the temperament to produce oil, it should hand back its licence.”

The warning came after months of pressure on production sharing agreements with international energy giants.

Environmental officials have raised a number of grievances against the Royal Dutch Shell-led (RDSa.L: Quote, Profile, Research) Sakhalin-2 project and the neighbouring Sakhalin-1, led by Exxon Mobil (XOM.N: Quote, Profile, Research), where Mitvol will begin an inspection on Nov. 9. 

Analysts say the pressure on the western companies is part of a Kremlin campaign to regain control over these projects, and the threats to Russian companies may be a fig-leaf to enable the authorities to claim they are not singling out any one firm.

“There is no precedent in Russia for license revocation from oil majors, and this activity is most likely connected to an attempt by the authorities to shift public attention from Sakhalin-2,” said analysts at Alfa-Bank.

Alfa said LUKOIL, YUKOS and TNK-BP had all received similar notifications in the past, as had Marathon Oil (MRO.N: Quote, Profile, Research), which earlier this year sold all its Russian fields to LUKOIL.

LUKOIL’S RISK EXAGGERATED

LUKOIL, which owns 406 licences to develop oilfields in Russia and is almost 20 percent owned by U.S. major ConocoPhillips (COP.N: Quote, Profile, Research), said that it hoped the issue would be solved and analysts agreed.

“We believe that the company will implement the ministry’s recommendations in the earliest possible time and will hardly lose any significant licences as a result of the latest check-up,” Aton brokerage said in written research.

LUKOIL’s shares, having risen almost 2 percent in the face of an on-site inspection by Mitvol on Friday, rose a further 1.25 percent on Monday to close at 2,120 roubles.

Analysts said they saw little likelihood that the threats to LUKOIL’s licence areas, which Deutsche UFG said covered 4.5 percent of production in the first half of 2006, would balloon into the kind of campaign that eventually bankrupted YUKOS (YUKO.MM: Quote, Profile, Research).

“The state had specific claims on YUKOS, including some to its owners. LUKOIL is unlikely to be a subject of similar claims, because, first of all, it is quite loyal to the authorities and, secondly, it is a reliable tax-payer,” said Dmitry Mangilyov of Prospect brokerage.

YUKOS was hit with $33 billion in back-tax claims bills in what was widely seen as a Kremlin attempt to punish its former chief executive, Mikhail Khodorkovsky, for his political ambitions.

He is now serving 8 years in a Siberian jail for fraud and tax evasion and YUKOS was declared bankrupt in August. Its assets are expected to be sold off within a year.

© Reuters 2006. All Rights Reserved.

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