RusEnergy

11.02.2005 The Moscow Times - Russia will not allow foreign companies to bid for some of the nations largest reserves deposits, Natural Resources Minister Yury Trutnev said Thursday. Only companies that are at least 51 percent Russian-owned will be allowed to participate in auctions for exploration and development licenses, Trutnev said, Interfax reported. The lucrative reserves that Trutnev's ministry plans to auction off this year include Sakhalin-3 field, which U.S. ExxonMobil had planned to develop, Eurasia's biggest gold field, Sukhoi Log, and the mammoth Udokan copper deposit in Chita region. Although not the most cheerful news for foreign investors, the announcement did not specify how exactly the state is to regulate the reserves exploration and development licensing. The process must first be detailed in the subsoil law, which has been in the works for months and will be submitted to the Cabinet as a draft later this month. Trutnev's remarks appear to end any hopes for ExxonMobil, which together with ChevronTexaco won a tender for Sakhalin-3, to ever develop the project. The initial tender results were abruptly annulled in January 2004. "We continue to believe that we have rights to the Sakhalin-3 bloc and the re-tendering is therefore a matter of regret," ExxonMobil Russia vice president Glenn Waller said Thursday. "We are not intending to participate in the re-tender or auction, simply because we don't feel that we should re-bid for something we already won the rights to." Waller declined to comment on whether ExxonMobil is planning to take any legal actions to recover its rights for Sakhalin-3. In fact the practice of a host state being able to bar foreign companies from controlling certain resources is widespread, with Russia until now being more of the exception than the rule. Venezuela, Saudi Arabia and the United States all grant the right to explore reserves to domestic companies. It is also common practice for foreign companies worldwide to bypass this obstacle by forming partnerships with domestic enterprises. "There is certainly some logic in foreign firms' desire not to be discriminated, but on the other hand it is a standard practice in other developing countries," said Steven Dashevsky, head of research at Aton brokerage. Dashevsky also noted that the state's drive to favor local companies reflects the fact that they now have enough capital to invest in developing reserves. "This also means that the money these companies have would stay in the country," he said. Yet easy access to reserves has been one of the key attractions to Russia for foreign investors, said Stephen O'Sullivan, co-head of research at United Financial Group. "Everyone looks at Saudi Arabia and says: 'Yeah, wonderful country, a lot of oil, it's a shame we can't get entitled to any of it.' Well, in Russia you could." One big question to arise from Trutnev's latest announcement is whether BP's Russian venture TNK-BP, formed in 2003 on a 50-50 base, would be able to bid for any more resources, possibly ending hopes for further expansion in Russia. BP so far is the only foreign company that made a corporate investment as large as $6.75 billion. "They didn't buy TNK to show how good they can make that Samotlor field be. They must have thought: 'we can act as consolidator ... we can bid for other licenses," O'Sullivan said. "They must have felt there was an upside from exploration and licensing." The new system could make these kinds of activities off-limits for TNK-BP, O'Sullivan said. Analysts and industry insiders, however, agreed that schemes that involve partnerships with domestic companies could still be an option. "One would really need to look at the specific terms of each tender or auction," a Western oilman said on condition of anonymity Thursday.