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The Moscow Times: LUKoil License Probe Expands

Tuesday, October 17, 2006. Issue 3520. Page 5.
Reuters

The Natural Resources Ministry has asked the Federal Tax Service to provide information on 398 licenses held by LUKoil, the ministry said Monday.

The request followed the ministry’s threat to withdraw 19 of the company’s licenses to develop oil fields in northern Russia due to violation of licensing agreements.

“We have requested the information on how LUKoil paid subsoil use and mineral resource taxes on these licenses,” ministry spokesman Nikolai Gudkov said. “The logic is, if the taxes are not paid or delayed, it means that there are problems with fulfilling licensing agreements.”

LUKoil, which owns 406 licenses to develop oil fields in Russia and is almost 20 percent owned by U.S. major ConocoPhillips, declined to comment.

Last week, LUKoil said it was working with the authorities to deal with the violations and hoped the issue would be resolved, 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 licenses as a result of the latest check-up,” Aton brokerage said in a research note.

The move against LUKoil comes amid increased Russian pressure on production sharing agreements with international energy giants and two months after Yukos was declared bankrupt.
 
Analysts say the pressure on the Western companies is part of a Kremlin campaign to regain control over these projects, and the threats to LUKoil 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,” Alfa Bank said in a research note.

Alfa said LUKoil, Yukos and TNK-BP had all received similar notifications in the past, as had Marathon Oil, which earlier this year sold its Russian fields to LUKoil.

Analysts said they saw little likelihood that the threats to LUKoil’s license 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.

“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 taxpayer,” said Dmitry Mangilyov of Prospect brokerage.

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

Environmental officials have recently raised a number of grievances against international energy companies, including Royal Dutch Shell and ExxonMobil, for purported environmental violations at their projects on the Sakhalin Island.

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