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. Last Updated: 07/27/2016

Chamber Rejects List For Oil Sharing Deals

In a blow to foreign oil investors, Russian parliamentarians said Thursday said they would ask the full State Duma to reject a bill outlining oil reserves open to potentially lucrative production-sharing agreements.


The bill, a list of about 250 oil fields holding 38 percent of proven Russian oil reserves, is a key step toward unlocking billions of dollars in planned and proposed investments in Russian oil, including a huge project by Amoco Corp.


But members of the parliament's watchdog audit chamber told a news conference they would ask the Duma, parliament's lower house, to reject the law early next month.


The call for rejection, likely to be accepted, is a slap in the face for Prime Minister Viktor Chernomyrdin, whom foreign oil investors have considered their guardian angel in Russia and who has been instrumental in getting energy deals off the ground.


It is also the latest sign that Moscow, in a quiet change of policy, is getting tough with potential Western oil investors and seeking ways to give its own oil companies, which hold licenses to most of the fields, a chance to get on their feet and compete with Western majors.


"It's quite a major setback," said one senior European energy consultant, who asked not to be identified. "There's a real feeling in Russia of 'Why should we give up any of this? It's ours.'"


Duma Deputy Yury Boldyrev, who is deputy chairman of the audit chamber, said the chamber had rejected the reserves list because government officials had not presented financial analyses proving that the fields would earn Russia more money faster if developed on a production-sharing basis.


Production-sharing contracts bring Western oil firms into risky countries by allowing them to finance and develop oil production through the sale of some output on world markets to cover costs and generate returns. The rest of the oil goes to the host country, which also gets royalties and taxes on profits.


Usual tax regimes do not apply to such arrangements, giving the investments an acceptable return.


Boldyrev said foreign investors would not be worried by the chamber's rejection. He said Moscow should slash the number of reserves open to output-sharing to 10 or 15 a year.


But senior oil executives are likely to be annoyed. "We are of course worried about anything that slows the process down," said Dan Westbrook, senior vice president and resident manager of Amoco Eurasia Petroleum Co. in Moscow.


While officials recommended that the field Amoco is eyeing, Priobsk, be included eventually in the production-sharing list, they said two prize, giant fields -- Samotlor and Krasnoleninskoye -- would not be tendered to foreign investors.


Amoco and Russian oil firm Yukos have a preliminary $50 billion production-sharing deal to tap Priobsk, one of Russia's largest oil fields, in the Tyumen region of Western Siberia.


But negotiations have slowed, partly because parliament has not yet approved the reserves list.


More bureaucratic delays appear to be on the horizon, blocking about $50 billion to $70 billion in planned foreign investments in Russian oil and retarding potential projects.


"We need a host of laws clarifying on what grounds a specific field should be included in the list," said parliamentary auditor Mikhail Beskhmelnitsyn.


Boldyrev, complaining that Russia's black gold goes into a black hole when oil firms fail to pay all their taxes, said the chamber also rejected the reserves list because output-sharing contracts might award too many tax breaks to companies.


Russia, the world's third largest producer of crude oil, last year passed a production-sharing law but only after revising it to meet demands by domestic lobbyists worried about the country's resources being exploited too cheaply by foreigners.