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Russia: Oil Exploration Law May Need Revisions

Wednesday, June 24, 2009

The Moscow Times Issue 4173

By Anatoly Medetsky

A senior Natural Resources and Environment Ministry official on Tuesday called for a revision of the rules that govern access to strategic oil and gas fields by companies with foreign capital, following concern from the industry that the regulations would stifle exploration.

Without clarification, companies may lose interest in doing any exploration in Russia, said Grigory Vygon, the ministry’s economy and finance department chief, in the government’s first indication that it recognizes the problem.

“In the event that the license is revoked … it may turn out that companies will not have any interest in investing in exploration,” Vygon said at an industry conference.

He urged a “better definition” of the rules to develop strategic fields.

Under the amendments to the law on subsoil reserves that went into effect in May 2008, the government may ban a fully or partly foreign-owned company that finds gas or oil from developing the field if it contains at least 70 million tons of oil or 50 billion cubic meters of gas.

Royal Dutch Shell executives publicly complained about the rule earlier this year. The company’s director for exploration and production, Malcolm Brinded, said in February that foreign investors wanted more confidence about accessing the oil and gas riches they discover.

“We would like to see more confidence … that if you explore you will be able to get on and develop,” he said in an interview with The Moscow Times.

The subsoil reserves law lays out very broad terms under which the government may stop a foreign-owned company from developing a newly discovered field, defining them as a potential “threat to national defense and security.”

Vygon said the Natural Resources and Environment Ministry had no concrete proposals but was ready to draft them.

“It’s a delicate subject,” he told The Moscow Times on the sidelines of the conference. “We need to work on this.

“There are a lot of questions about this,” he said. “Companies have been contacting us.”

The current rules apply to all oil and gas companies working in Russia, he said.

“All our companies have a foreign owner,” he said.

Even the industry champion, state-controlled Rosneft, has a number of foreign minority shareholders, such as BP. The British oil major also owns half of TNK-BP, the third-largest oil producer in Russia.

LUKoil, the country’s second-biggest oil company, is 20 percent owned by U.S.-based ConocoPhillips.

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