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. Last Updated: 07/27/2016

Polar Lights Oil Project Verging on Conclusion

The Polar Lights oil project in Russia's frozen north, which signed a $90 million loan agreement Wednesday with the European Bank for Reconstruction and Development appears on the verge of success after two year's of talks and delays.


To get off the ground, the $350 million venture has required three loans from three different world financial organizations totaling $200 million, two years of negotiations, a special tax break from the Russian government, a court ruling that the tax break was legal, and personal interest taken in the project by Presidents Bill Clinton and Boris Yeltsin and other high-level officials in both governments following environmental and legal challenges.


"We felt from day one that the key to development of oil in Russia had to be world organizations", said Miguel Espinosa, Conoco's assistant treasurer who was in Moscow for the loan signing.


Turning around the ailing Russian oil industry, in which production dropped by 14 percent in 1992, is thought to be a key to economic recovery. But as illustrated by the Polar Lights project, getting private Western companies to take part takes substantial incentives from government.


The project, a joint venture between Conoco and the state geological enterprise Arkhangelskgeolgia, is an unusually difficult and expensive one.


It is one of the first projects with foreign involvement to seek oil in a new field - the newly discovered Ardalin oil fields in the Timan-Pechora basin, west of the Urals. It's estimated reserves are 100 million barrels: about 10 percent of 1992 Russian crude exports.


Drilling of the first well began last week, production is expected next year and workers have completed half of a 65-kilometer pipeline that will connect it with the Russian pipeline network.


The $90 million EBRD loan carries a nine-year maturity, including a three-year grace period from principal repayment. The International Finance Corp. , an arm of the World Bank, will provide a $60 million loan and the U. S. Overseas Private Investment Corp. , will lend $50 million. Espinosa said $45-$70 million will come from private banks but will also be guaranteed by OPIC.


The project, which will employ 800 to 1, 000 workers, includes $40 million equity contributions from Conoco and an equal contribution in the form of in-kind services from Arkhangelskgeolgia, Conoco executives said.