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. Last Updated: 07/27/2016

Study: Russia Wins in Western Oil Deals

Western oil firms frustrated by Moscow's foot-dragging on foreign investment laws presented a study Tuesday designed to convince conservative officials that Russia stands to take the lion's share of rewards in oil deals.


The study, outlining the benefits from six flagship production-sharing contracts requiring $129 billion in expenditure, could be the evidence needed to persuade nationalist and conservative parliamentarians to pass energy and tax laws in 1997 and get the projects off the ground.


Foreign oil firms have to date invested only a tiny fraction of that total, citing high taxes, a flawed production-sharing law and Moscow's inability to ratify a list of reserves open to deals.


"No investments are going to happen until there's a firm legal base," said a top Western oil executive, who declined to be identified, after a conference where the study was presented.


Prepared by the Petroleum Advisory Forum and a group of Russian academics, the document said six major international projects requiring $102 billion in Western funding over 57 years would generate $591 billion in total benefits, with Russia getting 87 percent of the total.


The deals would at peak create 550,000 jobs, raise real gross domestic product by $450 billion, boost state revenues by $257 billion and Russian private sector revenues by $258 billion.


The foreign side would reap $76 billion in benefits, including $40 billion in foreign investor profits.


"With the overwhelming majority of benefits accruing to Russia, these projects will make an important contribution toward Russia's future economic growth and to the stability of its emerging market economy," a study group statement said.


Conservative Russian officials have blocked passage of key energy laws, saying they want to prevent what they call a fire sale of Russia's natural resources to the West.


"Under the current licensing regime regulating the use of subsoil resources and the current gross revenue-based tax system, large-scale investments in the Russian oil industry are not forthcoming," the statement said.


Deputy Fuel and Energy Minister Valery Garipov said the study showed the necessity of Western investment in the oil industry, but he said Russian firms would have to have at least a 50-percent stake in production-sharing deals.Under such deals, foreign firms profit by taking a share of the output from their ventures with Russian firms.


"Domestic investments are not appearing," Garipov said, adding that only Western-financed production-sharing contracts would reverse Russia's steep oil-output decline. "There are Russian banks that bought oil companies, but where are their investments?"


The study said that for each dollar directly invested in the oil sector, an additional $0.90 in revenues would be generated in related domestic industries.


Alexei Mikhailov, a parliamentarian and supporter of Western oil firms, said the six Western-sponsored projects -- Sakhalin I and II, Priobskoye, West Salym, Timan-Pechora and Yuzhnoye Khylchuyu -- could eventually account for 2 percent of GDP.


?Russia and a foreign consortium led by Texaco Corp. signed a production-sharing protocol Monday for a massive oil deal in the Timan-Pechora region of northern Russia, The Associated Press reported.


A final agreement is expected early next year, said Thomas Hazen, president of the Timan Pechora Co., in a statement released by Texaco.


The Timan Pechora Co.is owned by affiliates of Amoco, Exxon, Norsk Hydro and Texaco.


A demand by the Russian side for an equity stake in the consortium slowed talks. The consortium has agreed to 20-percent Russian participation.