RUSSIA - The Active PSAs

There are JVs to develop up to 213 oil and gas fields in the far north, West Siberia, and the far east. Some fields are huge. The JVs involve the largest oil companies in the world, mostly from the US. Some of the JVs have become active before their PSAs were finally approved.

Sakhalin I, the first among the projects on and off Sakhalin island in the Far East, had been prepared since 1976. Its PSA was signed on June 19, 1995 and went into effect on June 11, 1996. Work was launched immediately by Exxon, the operator and leading partner of Japan's Sodeco group (JNOC, Japex & 12 private firms). Its fields on the Sakhalin shelf are Chaivo, Odoptu and Arkutun-Daginskoye, which contain 2.5 bn barrels of oil and condensates and 425 BCM (15 TCF) of gas. Total investment will be about $15 bn, with more than $550m spent so far. Oil production should begin in late 1999. Full-scale gas production will begin as soon as a major export pipeline to Hokkaido, northern Japan, has been completed. A two-year feasibility study for the pipeline was started in mid-1998. The contract for the first of seven oil and gas platforms to be installed in the fields was awarded to Kvaerner in January 1997 and this could cost about $1 bn. The platform will be a fixed steel gravity base structure and ice and earthquake resistant to cope with the sub-Artic conditions and seismic activity in the Okhotsk Sea. It will have a capacity of 110,000 b/d of oil and some gas and will be installed in a water depth of 150 feet in Arkutun-Daginskoye, the first field to be on stream. The JV has two Russian partners Rosneft-Sakhalin and Sakhalinmorneftegaz-Shelf.

Sakhalin II, a project prepared since 1998, involves a JV called Sakhalin Energy Investment Co. (SEIC), to develop Piltun-Astokhskoye and Lunskoye fields on the island's eastern shelf. Its PSA was signed on June 22, 1994 and came into effect on June 22, 1996, but it is yet to be backed by a full Duma legislation. Shell is the operator with a 25% stake. Its partners are Marathon (37.5%), Mitsui (25%) and Mitsubishi (12.5%). McDermott pulled out of the JV in 1997 and its 20% stake was taken up by the other partners. The Moscow government insists that the JV should have a Russian partner. The fields have 750m barrels of oil, 300m barrels of condensates and 408 BCM of gas. Investment would be over $12 bn, if the project is to include an LNG export

system which could be on stream by 2005. On June 11, 1998 SEIC got a first $177m tranche of a $348m loan from the European Bank for Reconstruction & Development (EBRD), US state-owned Overseas Private Investment Corp., and the Export-Import Bank of Japan. This was the first international financing of an offshore E&P project in Russia based on a PSA. The money will help fund Phase 1 to produce 45,000 b/d from Piltun-Astokhskoye field's Astokh sector in 1999, although harsh winter conditions will limit initial output to six months of the year. So far, SEIC has invested more than $500m. In October 1997, Shell contracted Rosneft's unit Sakhalin Marine, ICB Shipping of Sweden and SBM of Switzerland for a floating storage and offloading vessel. Early oil will be shipped by tankers, with Japan to be the main market. Shell hopes to see the JV's crude oil become a regional marker for spot trading in the Far East. Lunskoye is a gas field which will be producing for the proposed LNG venture and some gas to be supplied to the local Russian market.

Sakhalin III is a two-block project started in 1993 by Exxon to develop the West-Odoptu and Ayashsky fields on the shelf. Its PSA is still under negotiation by the Russian side and Exxon.

Another Sakhalin III project started in 1993, involving Mobil as operator and consortium leader to develop the Kirinsky fields, is under negotiation as well. The other partners are Texaco and Exxon. The fields are believed to contain more than 1 bn barrels of oil equivalent. The group in late 1997 was forced to accept a Russian partner - Sakhalinmorneftegaz with a 33.3% stake - and Mobil then hoped it would start a $300m exploration drilling programme in the ice-free summer of 1998. But this was delayed, for the third time, and the US major says drilling could begin in 1999. In the meantime, the partners hope their PSA would be finally approved by the Duma, although the latter seems to be reluctant to do so.

The Sakhalin IV, V and VI tender projects are under discussion with various foreign companies. Sakhalin V has been discussed by BP, Rosneft and Sakhalinmor-neftegaz.

Sakhalin IV is partly onshore and partly offshore area, with one major field offshore and six smaller fields onshore. Arco in April 1998 signed a deal with Rosneft and its local unit Sakhalinmorneftegaz to have a JV as an operator of the Astrakhanovskaya field off the island's north-western coast and the six onshore fields. The two Russian companies will hold 51% in the JV and Arco is to hold the rest. If the Duma approves the project, the JV would begin seismic work before end-1998 and drilling would start in 1999.

In July 1997, President Yeltsin signed into law the first list of fields eligible for PSAs approved by the Duma and the upper house. They included five oil and gas fields. One of these is the Prirazlomnoye field, a complex structure lying 60 km off-shore in the Arctic Barents Sea. It will be developed by BHP of Australia in part-nership with Gazprom and the field could eventually produce 120,000 b/d.

Priobskoye field, in Siberia's Khanty Mansiisky region, is to be developed by Amoco in partnership with the Yukos and Yugraneft. The field contains 5 bn barrels of recoverable oil. Production is to rise from 10,000 b/d at present to more than 450,000 b/d. Total investments will be between $20-50 bn, including a new terminal and other infrastructure.

Timan Pechora fields in the far north, to be developed by Texaco in partnership with Rosneft, the local Russian producer Arkhangelskgeoldobicha (AGD), Amoco, Exxon and Norsk Hydro, contain 2 bn barrels of oil and total investment is estimated at $15-40 bn. The

JV, Timan Pechora Co. (TPC), has been waiting since 1990 and its PSA is yet to be finalised and approved. The block is 17,500 sq km and its 12 fields include Trebs, Titov, Varandeiskoye and Toraveiskoye. The local government of the Nenetz autonomous region has pressed TPC to start developing the fields since 1996. But Texaco and the company's other Western partners have insisted on securing a clear and comprehensive PSA before actual work begins, because the local authorities wanted to impose onerous tax conditions. In June 1998, the local government granted 25-year rights to AGD for the development of Varandeiskoye and Toraveiskoye and indicated that the rest of the fields would be split into three different blocks and offered to companies other than the Texaco-led group. The Western partners were alarmed and subsequently got visiting US Vice President Al Gore to discuss the matter at the highest level in Moscow. Then Moscow got LUKoil to work on TPC's PSA and Premier Kiriyenko promised this would be finalised in September 1998.

In March 1998, LUKoil and Conoco signed an MoU for a JV to develop oilfields in Timan Pechora's Northern Territories, with a PSA to be finalised in September 1998 and development to begin in 1999. The fields will begin producing from early 2001. To make sure the local oil company will not be an obstacle, LUKoil had earlier bought 23.5% in Arkhangelskgeoldobicha (AGD) in a government privatisation tender and later raised its stake to 75%. In July, LUKoil sold 15.7% in AGD to Conoco.