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. Last Updated: 07/27/2016

Oil Majors Focus on Law, Not Politics

International oil majors indicated Tuesday that they are less concerned about who finally wins Russia's hotly contested presidential elections than about creating a satisfactory legal and tax environment for their work in Russia.


Don Stacy, president of Amoco Eurasia Petroleum, told an international conference on oil and gas projects Tuesday in Moscow that the company's investment strategy hinged on legal clarifications to the vital production sharing law and other measures.


"Obviously we're prepared to move ahead in the smaller investments, even in the uncertain political climate, but on the major investments that require billions and many years, we need the stability, we need the new tax legislation, we need the [production sharing] and the normative acts," he said.


But he praised government efforts on the measures so far and said prospects "look very good for investment in the Russian Federation."


Kenneth Watts, president of Conoco International Petroleum, said foreign investors were not making their involvement in Russian projects conditional on President Boris Yeltsin's re-election.


"We came here in 1991, when there were Communists [in the government]. Then there were reformers. We work under whatever government there is," he said.


Vagit Alekperov, president of the Russian oil giant LUKoil who has been running Yeltsin's election campaign in Western Siberia's oil-rich region of Tyumen, said he "was satisfied with the first round" of voting, in which Yeltsin took a slim lead over Communist Party rival Gennady Zyuganov. Yeltsin now must face Zyuganov in a second-round runoff.


"I am sure that in the second round the Tyumen region will give its votes to Boris Nikolayevich," he told a news conference Tuesday.


K. T. Koonce, president of Exxon Ventures "CIS" Co., said maintaining present levels of oil and gas production in Russia would require "significant efforts and investment to operate the current fields and explore new resources."


"We are both ready and willing to participate and to invest in the further development of this industry once conditions and the legal framework are acceptable," he said.


Two international projects involving Exxon -- Sakhalin 1 and Sakhalin 2 -- are proceeding under a special provision in the production sharing law for deals concluded before it took effect last January.Amoco and its Russian partner Yukos are "actively engaged" in negotiations of contract terms for development of Priobskoye field, "the largest undeveloped oil field in Russia," Stacy said.


A preliminary agreement was signed in May, but the partners must now decide the extent of their venture's exposure to the country's range of oil-sector ta|es and tariffs. The Priobskoye deposit contains recoverable oil reserves of 610 million tons and 32 billion cubic meters of natural gas.


"We have agreed to go forward with some spending even before all the normative acts are passed," Stacy said. "We're not prepared to spend billions, but we certainly are prepared to move ahead with some spending. We think that in realistic time, these issues will be sorted out."


Anatoly Shatalov, first deputy fuel and energy minister, said the State Duma was expected to start reviewing changes to the production sharing


law within one to two months.


"We at ARCO believe that the prospects are excellent for the oil and gas projects development in the CIS," said John Cheetham, president of ARCO International Oil and Gas Co.


He said oil production in Russian and the CIS will increase significantly "regardless of what happens on the political side."


Watts of Conoco, which has invested more than $400 million in development of the Ardalin oil field as part of its Polar Lights project in the Arkhangelsk region of the Far North, said recent tax increases were thwarting the effort.


"The result has been an increase of over 200 percent in taxes paid per barrel, with no letup in sight," he said.





Polar Lights has extracted more than 4 million tons of oil since production began 19 months ago, with an average of 3,000 barrels a day this year, about 20 percent higher than planned, Watts said.