Conoco's Polar Lights may lose special permission for export

Jun 26, 1999 02:00 AM

The head of Conoco's Russian unit said recently that his company's Polar Lights venture stood to lose some of its access to the Russian oil export pipeline network.The Kremlin has said it wants to put Polar Lights, which groups Conoco with LUKoil and Arkhangelskgeobol-dobycha, on an equal footing with other Russian companies in August, said Kenneth Watts, the president of Conoco International Petroleum Inc. In practical terms, that means that the venture would lose its special permission to export 100 % of the oil it extracts from the Ardalinskoye field, Watts said. Most Russian oil producers are allowed to export only 30-40 % of output, he noted.
Watts said that Conoco would petition the Russian government to extend Polar Lights' special pipeline access past August. The venture is only breaking even because it exports all it produces, he said.

Indeed, the joint venture's General Director Aleksandr Shmakov remarked earlier this year that Polar Nights could not hope to turn a profit before 2016because it had such a heavy tax burden and a relatively high debt to creditors. (Watts noted recently that about $ 275 million of the $ 400 million invested in the project so far had come in the form of foreign loans.) Shmakov also stated that high taxes and transport costs and low oil prices had forced the Russian-American group to restructure its debts to the European Bank for Reconstruction and Development (EBRD), International Finance Corporation (IFC) and Overseas Private Investment Council (OPIC).

The partners are currently extracting about 36,000 barrels of crude per day from Ardalinskoye and hope to raise output to 50,000 bpd over the short term. Conoco said in a press release earlier this year that Polar Lights had extracted a total of 50 million barrels of oil from the field. Some 11 wells have been drilled at the field since the joint venture, the first of its type to work in Russia, was launched in 1992. Commercial production began in 1994.

Source: NewsBase
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