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Reuters: UPDATE 1-Russia snubs Exxon field claim, chooses Rosneft

Fri Sep 22, 2006 4:29am ET

MOSCOW, Sept 22 (Reuters) – Russia said on Friday it would snub claims by Exxon Mobil for a small field located near the U.S. oil major’s giant Sakhalin-1 project, as it will grant it to its state oil firm Rosneft.

The move shows the Kremlin is keeping up pressure on production sharing deals with foreign majors, which fell out of Moscow’s favour after global oil prices rose and the state decided to gain more control over top industries.

“There was one bid at the auction and it came from Rosneft. It means that it will be automatically granted a licence after the auction commission meets,” a Resources Ministry official told Reuters.

The ministry has already told Exxon it would not automatically enlarge the territory of Sakhalin-1, despite the discovery of new reserves near or within existing deposits.

On Thursday, it said it had auctioned off the deposit.

The field with reserves of 66 million barrels is tiny by Russian standards and small compared with Exxon’s reserves at Sakhalin-1 of 2.25 billion barrels.

But Exxon, the world’s largest company by market value, has treated the case seriously, saying the move contradicted the initial production sharing agreement and warned Russia it could damage the country’s investment climate.

Exxon leads Sakhalin-1 with a 30 percent stake. Rosneft is its partner with 20 percent, alongside India’s ONGC and Japan’s group of trading houses Sodeco.

Treatment of neighbouring fields has long been the only major point of disagreement between Russia and Exxon, but as tensions between the Kremlin and foreign investors rose, the number of disputes has soared.  

Russia has told Exxon this week it cannot start regular crude exports from its De Kastri terminal, which is part of the $12.8 billion Sakhalin-1, until more checks are made.

It has also said it would oppose a possible cost increase at Sakhalin-1 to $17 billion.

Cost overruns have also become the main stumbling block in talks between Russia and Royal Dutch Shell, which is building the world’s largest plant to liquefy gas as part of the $20 billion Sakhalin-2 project.

Russia this week revoked ecological permits from Shell and told it to suspend work, although the firm says work is continuing since it has yet to receive the order.

Analysts say Russia is putting pressure on Shell to get better terms for its gas monopoly Gazprom, which wants to join Sakhalin-2.

© Reuters 2006. All Rights Reserved

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