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Bloomberg: Gazprom Doesn’t Plan to Buy Stake in Exxon Mobil’s Sakhalin-1

By Joe Carroll and Greg Walters

June 29 (Bloomberg) — OAO Gazprom, the Russian energy company that seized control of $8.5 billion in projects from Royal Dutch Shell Plc and BP Plc, doesn’t expect to buy a stake in Exxon Mobil Corp.’s Sakhalin-1 oil and gas development.

Deputy Chief Executive Officer Alexander Medvedev told shareholders at a meeting in Moscow that plans for Gazprom to buy the natural gas output of the project won’t entail taking an ownership stake in the $17 billion venture. Gazprom said on June 26 that it wants to buy all the gas produced at the offshore Sakhalin-1 project to uphold the Moscow-based company’s monopoly on Russian gas exports.

Gazprom’s decision to leave Sakhalin-1 alone may have improved its chances of convincing Exxon to abandon plans to export the gas to China, said Fadel Gheit, senior vice president of oil and gas research at Oppenheimer & Co.

“This is their way of showing Exxon that there’s an easy way to do this and there is a hard way to do it,” said Gheit, who has a “buy” rating on the shares and personally owns the stock. “These are brutal chess players. They don’t push you; they make you jump.”

Jeanne Miller, an Exxon Mobil spokeswoman in Houston, said talks with Gazprom over Sakhalin-1 gas sales are continuing. She declined to comment on Medvedev’s statement.

Exxon, which pumps more crude oil than every member of OPEC except Saudi Arabia and Iran, is the lone international oil company to escape seizure of assets as President Vladimir Putin tightens his grip on Russia’s petroleum and mineral resources.

`Crosshairs’

Shell, the world’s second-biggest oil company behind Exxon, ceded a majority stake in its Sakhalin-2 project to Gazprom in December for $7.45 billion.

BP’s TNK-BP subsidiary last week agreed to surrender a controlling stake in the Kovykta gas field in Siberia and half of a pipeline unit to Gazprom. The price will range from $700 million to $900 million when finalized, the companies said in a June 22 announcement.

Exxon appeared to be next in line for an asset seizure after environmental regulators and local government officials began issuing citations and fines to Sakhalin-1 managers for overflowing trash bins, peeling paint and failing to spread enough sand across icy parking lots, Gheit said.

“It was the same pattern where they just want to harass them to tell them you’re in our crosshairs,” Gheit said. “They did the same things to Shell and BP and eventually they wilted them completely down and beat them into submission.”

Russia, Venezuela

Record energy prices have emboldened leaders in countries that are rich in oil and gas, such as Russia and Venezuela.

Exxon Mobil and ConocoPhillips have failed to come to terms with the state oil company in Venezuela, where the government of Hugo Chavez has taken control of oil joint ventures in the Faja region. The companies will leave Venezuela, the government said this week. Talks continue over the amount of compensation they will get for their assets.

Russia has 79.5 billion barrels of untapped oil, the sixth- largest reserves in the world, behind Saudi Arabia, Iran, Iraq, Kuwait and Venezuela, according to 2006 figures published by London-based BP.

Russia pumped 9.77 million barrels of oil a day last year, enough to supply 64 percent of U.S. demand. Only Saudi Arabia had higher output with 10.9 million barrels a day, according to BP.

Exxon’s Sakhalin-1 project began pumping oil in October 2005, reaching 250,000 barrels a day in February. The Irving, Texas, company operates and owns a 30 percent stake in the project under a 1996 production-sharing agreement with the Russian government.

7-Mile Wells

Exxon built the world’s most powerful drilling rig to bore wells from the island’s shore to reach oil reservoirs buried under the sea floor more than seven miles away. The three fields hold an estimated 2.3 billion barrels of oil and 17.1 trillion cubic feet of gas.

The other partners in Sakhalin-1 are a Japanese group known as SODECO that owns 30 percent; India’s Oil and Natural Gas Corp., with 20 percent; and OAO Rosneft, Russia’s state-run oil company, with 20 percent.

The first oil discovery at what is now Sakhalin-1 in the Russian Far East was in 1977. The development is comprised of the Chayvo, Odoptu and Arkutun Dagi fields, which lie under seas that are choked with ice for half the year.

To contact the reporters on this story: Joe Carroll in Chicago at [email protected] ; Greg Walters in Moscow [email protected]
Last Updated: June 29, 2007 17:54 EDT

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