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Reuters: Russia slams oil licence breakers, cites Shell

By Mikhail Yenukov

MOSCOW, Dec 8 (Reuters) – Oil firms operating in Russia are flouting the law to a great degree and the Royal Dutch Shell-led Sakhalin-2 project is the biggest example, Natural Resources Minister Yuri Trutnev said on Friday.

Trutnev has led a crackdown on environmental and licensing violations that has mainly targeted projects run by foreign oil firms such as Royal Dutch Shell , Exxon Mobil and TNK-BP , a joint venture of BP Plc .

On Friday, he said more than a tenth of crude oil output in Russia, the world’s top producer in recent months, is pumped in violation of companies’ licence terms.

Analysts have interpreted his campaign as part of a wider drive by the Kremlin to boost state control over energy, with state oil and gas firms Rosneft and Gazprom gaining a competitive advantage over private and foreign rivals.

“More than 10 percent of oil produced in Russia is extracted in excess of the numbers agreed in project documents,” Trutnev told a meeting between his ministry and the prosecutor general’s office, which has also promised a tough line on licences.

“Our checks have discovered over 11,000 violations,” Prosecutor General Yuri Chaika told the same meeting.

Trutnev said regulators had neglected the task of keeping track of over-production and the system of controlling licence agreements had almost totally collapsed since the early 1990s.

If oilfield operators rush to produce during the years covered by their licence, they can make it harder to eke out the last barrels of reserves when a field is near depletion, a problem faced by many producers in Russia.

“As a result of the lowered vigilance on rational field exploitation, the oil recovery factor in Russia has fallen from 0.45 to 0.30 in the last 20 years,” Trutnev said, according to a text of his speech released by the ministry.

“All this is directly damaging the ecology… Sakhalin-2 has become a shining example,” said Trutnev.

Prosecutors have threatened to withdraw licences from two big gas projects operated by TNK-BP and have warned they may open a criminal case into the Shell-led Sakhalin-2 project, a $22 billion venture that has undergone repeated inspections by investigators from the ministry’s environmental agency.

Russian oil production was running at 9.75 million barrels of crude oil per day in November.

If volumes equivalent to more than 10 percent of that were found to amount to illicit production, Russia could theoretically cut output by 1 million bpd. By comparison, world production growth was only 900,000 bpd in 2005. 
 
© Reuters 2006. All rights reserved.

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