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The Moscow Times: Exxon Warns Russia Over Sakhalin Spat

EXTRACT: Weeks of pressure by Moscow on the rival Sakhalin-2, led by Royal Dutch Shell, culminated Tuesday with the country’s environmental watchdog saying it had asked a court to recognize that the scheme did not comply with ecological rules. Work will have to stop at that project if the suit is successful.

THE ARTICLE

Monday, September 11, 2006. Page 5.
By Deepa Babington
Reuters

NEW YORK — ExxonMobil on Thursday warned Russia to honor a decade-old production-sharing agreement to develop the Sakhalin-1 oil and gas block or risk spooking other foreign investors in the country.

The statement comes as the government and Exxon squabble over whether the company has automatic rights to develop newly discovered reserves around existing deposits in the Sakhalin-1 project.

The government plans to auction off the new deposits, while Exxon believes its license territory should be automatically enlarged to include them.

Exxon said it was in talks with the government to resolve the issue, but that any resolution should account for the rights of consortium members and strictly comply with the Sakhalin-1 agreement as well as the law.

“As the Sakhalin-1 project is one of the largest single foreign direct investments in Russia, it is globally visible and therefore serves as an indicator to others of the success or failure for other potential large foreign investment in the Russian oil and gas industry,” Exxon spokesman Bob Davis said in a statement.

“Any failure to honor the [agreement] could inevitably undermine the confidence of foreign investors and have a significant negative impact on the Russian investment climate,” he said.

Analysts have said the Kremlin — which had already alarmed foreign investors with its dogged pursuit of oil company Yukos for back taxes — is showing signs of increasing unhappiness with major projects controlled by foreign investors.

Weeks of pressure by Moscow on the rival Sakhalin-2, led by Royal Dutch Shell, culminated Tuesday with the country’s environmental watchdog saying it had asked a court to recognize that the scheme did not comply with ecological rules. Work will have to stop at that project if the suit is successful.

Exxon, meanwhile, said it had started the process of exporting oil from Sakhalin-1 on schedule, marking a major milestone for the closely watched project.

That met Exxon’s own forecast of exports starting in August, despite some reports earlier in the summer that they could be delayed to October.

Sakhalin-1 is the biggest new oil find in the area in many years and is expected to boost supply in a tightly stretched global market, helping ease high crude prices and displacing sales of competing African and Mediterranean crude into Asia.

The first oil from Sakhalin-1 began flowing into the export system on Aug. 29, and the initial tanker will begin loading at the newly built DeKastri terminal this month, Exxon said.

Oil production from the project should ramp up to a peak rate of 250,000 barrels per day by the end of 2006, it said.
 
© Copyright 2006 The Moscow Times. All rights reserved. 
 
http://www.themoscowtimes.com/stories/2006/09/11/041.html

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