Western oil execs try to move Russian oil-output law

Jan 23, 1997 01:00 AM

Western oil executives and Russian officials are drawing up the battle lines for an offensive to push through legislation which could make 1997 the year Russia finally becomes a top-flight oil investment opportunity. Some energy experts said a fully-fledged production-sharing law could be in place as soon as June, once amendments to the existing law and enabling legislation are passed by the lower parliament house, the State Duma. But the task is easier said than done, say Western oil men, who are waging a fierce battle to persuade conservative politicians to acquiesce to foreign oil companies' needs. "There is an emotional reaction to foreign investment into what some people consider to be an industry of strategic importance," Ed Verona, director of the Petroleum Advisory Forum grouping Western oil majors, said. The amendments are needed to make the basic output-sharing law, passed in 1995, compatible with existing Russian laws. The list of reserves eligible for production-sharing agreements between Russia and Western oil firms needs to be passed to pave the way for $ 50-$ 70 billion in planned investments in the sector. Russia has already said it will trim the list from an original 250 or so fields to around 20, and that it will offer up more prize reserves in the future. "Our aim is to present the amendments to the plenary session of the Duma by mid-February," said Andrei Konoplyanik, a specialist on the issue and key link between the Fuel and Energy Ministry and Western oil majors. "In this case, I would hope we might manage to pass it through the three Duma readings by the close of this Duma session, which is some time in June."
Production-sharing agreements allow Western oil firms to develop oil in risky countries by financing costs and returns by exporting part of their output. Some Duma conservatives and nationalists object to foreign oil firms' participation in Russia, saying it would give away prize fields and deprive Russia's new majors of big projects. Russia's potential foreign oilcontracts have been blocked for years by wranglings over these legal issues, and, more significantly, by questions over whether Moscow really wants foreign oil investments at all. One of Russia's biggest potential deals, Amoco's $ 50 billion production-sharing deal to tap the giant Priobsk fields in Western Siberia, is hanging in the balance until Russia sorts out the legislation. Russia, the world's third biggest oil producer after Saudi Arabia and the United States, produced around 5.86 mmbpd in 1996, the lowest level for nearly 30 years. Without major outside investments the decline will continue, since Russian oil companies do not have the money to produce oil in remote, expensive Siberia without outside help.

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