RusEnergy

Aug. 07, 2006 Kommersant - Russia's Energy and Industry Ministry presented Friday the draft report on progress in Product Sharing Agreements (PSA), which emphasized deviations in their technological procedures. Now PSA operators will either have to amend the terms of the agreements or prove that deviations don't breach their provisions. The 2005 report of Energy and Industry Ministry that was presented Friday spotted some shortcomings in all three PSAs of Russia, including Kharyaga field ($800 million invested; French Total is the operator) and two offshore projects in the Sea of Okhotsk – Sakhalin-1 (over $5.6 billion; U.S. ExxonMobile) and Sakhalin-2 (more than $11 billion; British-Dutch Shell). The PSA projects yielded roughly $110.3 million (nearly 3 billion rubles) to Russia past year, said the report. Almost an equal amount went to the budget in state duties for using "Russia" or "the Russian Federation" in the names of the entities. "One of the problem issues is deviating from technological procedures of the fields' development," said the report of Viktor Khristenko's ministry. Project operators are offered either to amend the agreements or confirm that no changes are needed. It is worth mentioning that the ministry calls for no sanctions for the oil companies but urges the Natural Resources Ministry to render assistance in reaching an accord about new technological procedures. But deviations may postpone the time, when Russia starts getting revenues under the projects, Natural Resources Minister Yury Trutnev said some time ago. Kharyaga, for instance, yielded the first profit oil only in 2005. Russia will be short of more than 2 million tons of such oil in 2006 due to the higher drilling costs. Natural Resources Ministry is probing into the Sakhalin-2 project now. The inspection will last till August 20, but the ministry claims already the operator "is changing drilling dates, production level and rates of hydrocarbon selection," which will ultimately shelve the efficient stage of the project. Meanwhile, Industry and Energy Ministry is studying the Sakhalin-2 budget, which the investor urges to extend from $12 billion to $20 billion. Russia's bureaucrats apparently dislike the progress in PSAs, though the root cause could be the general dissatisfaction with such agreements. Moscow introduced product sharing procedures in the wake of the low prices for hydrocarbon, but they are skyrocketing now.