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. Last Updated: 07/27/2016

Billions For Fuel Industry

Russia's oil and gas industry is working on a shaky legal basis but Western firms are about to plunge billions of dollars into at least two major projects, a senior government official said Wednesday.


Deputy Fuel and Energy Minister Anatoly Shatalov said production-sharing deals to develop oil and gas fields off the Far Eastern island of Sakhalin and in the central Volgograd region could be signed by the end of June.


He told an international oil and gas conference that progress was being made in drafting production-sharing legislation to back up a presidential decree issued in December.


"By the end of June, this entire package (six documents) should be in place. But before then we will sign two major agreements," he told reporters . "I think it will be the agreement with Elf Aquitaine in the Volgograd region and Sakhalin-2."


Shatalov gave no details of the Elf Aquitaine contract. The French company has been seeking to develop deposits in Volgograd and Saratov, but has trouble agreeing to terms with the latter city's authorities.


"I think in the first half of May we will bring into action a production-sharing project in the Volgograd and Saratov regions," he said. "I think work will begin by May 20."


The 25-year Sakhalin-2 production-sharing deal is with an international consortium known as MMMSM, or Marathon Oil Co., McDermott International Inc., Mitsui & Co. Ltd., Mitsubishi Corp. and Royal Dutch/ Shell.


Under the contract, Russia will receive more than 50 percent of profits. The consortium will also pay Russia a $50 million signing bonus, $100 million for social and economic development of Sakhalin and $160 million for geological work.


The Sakhalin-2 fields, Piltun-Astokhsk and Lunsk, have combined recoverable reserves estimated at about 100 million tonnes of oil and more than 400 billion cubic meters of gas.


Shatalov said another Sakhalin project, Sakhalin-1, involving U.S. Exxon Corp. and Japan's Sodeco, should also be concluded by the end of this year.


Shatalov said the big Sakhalin projects could serve as a model for attracting foreign investment and speed up the process. He said foreign investment in the oil and gas industry could total $20 billion this year.


Western companies have voiced concern over the lack of legislation safeguarding investments.


"We only have 10 percent of the laws we need. We know this and we feel it.," Shatalov said.


He said he was "waiting impatiently" for a long-delayed Law on Oil and Gas, expected to clarify key issues such as jurisdiction between federal and regional authorities, property rights, tax requirements and investment guarantees.