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Dow Jones Newswires: Putin Urges Move Vs Cos Breaching Licensing Deals

27 September 2006 / 16h18   
 
MOSCOW (AP)–President Vladimir Putin Wednesday urged Russian officials to take measures against companies that violate licensing agreements, as regulators probe several Western oil corporations over environmental concerns and allegations that they failed to adhere to the terms of their deals.

“I am counting on the (Natural Resources) Ministry and the government as a whole making these decisions, including with regard to those companies that work in bad faith and don’t fulfill licensing agreements,” Putin said in televised comments.

Earlier in the day, Foreign Minister Sergey Lavrov sought to reassure Western governments rattled by a decision to pull a key environmental permit at a Shell-led liquefied gas project off the Far Eastern island of Sakhalin. Lavrov said the probe won’t necessarily lead to the license being revoked, despite a swathe of criticism of the project by environmental regulators.

Putin’s comments came after Natural Resources Minister Yuri Trutnev notified him that there were double the number of permitted inactive oil wells.

Total SA’s (TOT) Kharyaga project in the Arctic North as well as BP PLC’s (BP.LN) Kovykta natural gas development in the Far East have faced probes and complaints over their alleged failure to meet the production targets specified in the original terms of their agreements, which were signed in the 1990s.

Prosecutors threatened this week to have BP’s license at Kovykta pulled for not meeting a 2006 production forecast of 9 billion cubic meters of gas, stipulated in the original license. BP contends that true demand of the region, which has experienced a demographic decline, is just 2.5 billion cubic meters.

Trutnev indirectly supported the prosecutors’ position on Tuesday, saying the original demands of the Kovykta license were unlikely to be modified, the Interfax news agency reported.

He also announced a month-long review of Shell’s $20 billion Sakhalin-2 project and stressed that work would be frozen if Sakhalin Energy – the consortium led by Royal Dutch Shell PLC (RDSA) – fails to present satisfactory proposals to overcome numerous environmental violations.

Sakhalin Energy has suggested that environmental groups are exaggerating the extent of the damage, and insists it is keeping to ecological safety standards.

Observers interpreted the government’s move as a means to pressure the company to secure better terms for state gas monopoly OAO Gazprom (GSPBEX.RS), which is seeking to join the project. Lavrov strongly denied that. “Statements about some sort of a revision of production sharing agreements and especially about a squeezing out of foreigners from the Russian fuel and energy sector are groundless,” he said.

Sakhalin Energy CEO Ian Craig expressed confidence that the project wouldn’t be interrupted. “It (the permit) is highly unlikely to be revoked,” he was quoted by Dow Jones Newswires as saying at the conference.

Sakhalin-2 is one of a handful of production sharing agreements that were struck in the early 1990s when Russia was desperate for foreign investment to help develop its reserves. The deals offered Western oil companies control in the projects as well as lucrative tax breaks.

But now that Russia’s finances have been transformed thanks to high energy prices and state control of the oil sector is increasing, the government appears to be reconsidering the projects.

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