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. Last Updated: 07/27/2016

Pena: Russia Should Respect Its Oil Deals

Top U.S. trade officials wagged their fingers at Russia on Tuesday for stalling two oil production projects worth tens of billions of dollars just one day after Russia and the United States established a joint commission to investigate the deals.


U.S. Energy Secretary Frederico Pe–a told a gathering of over 200 Russian and Western officials and businessmen that a committee, established under the auspices of the Gore-Chernomyrdin Commission, is expected to report within two months on the failed projects of U.S. oil giants Amoco and Exxon.


"We are now at a point, I believe, where international companies need stronger assurances from the Russian government that they are welcome in Russia," Pe–a told a luncheon hosted by the American Chamber of Commerce in Russia and the Moscow International Petroleum Club.


Pe–a noted one promising sign that Russia's views were changing -- the consideration of three projects involving U.S. partners for approval as production-sharing agreements, or PSAs.


A PSA is a contract between the Russian government and foreign investors that establishes investment conditions considered more stable and favorable than those set by existing law and tax regimes.


The projects, which involve U.S. oil companies Sampson Oil, Quintana and Occidental Petroleum, will be included in a list to be submitted this fall to the State Duma, or lower house of parliament, Pe–a said.


One oil industry source, however, said that the three proposed PSAs are fairly minor projects.


Pe–a added that the Gore-Chernomyrdin Commission also is pressing for approval in 1998 of what it sees as four critical PSA projects:


?The Northern Territories project involving Conoco and Russian oil company Rosneft.


?The Timan-Pechora project led by Texaco and including Exxon, Amoco, Norwegian oil company Norsk Hydro and Rosneft.


?Sakhalin 3, involving Exxon, Mobil and Texaco.


?A Siberian project called Priobskoye now under dispute between Amoco and Russia's Yukos Oil.


The Priobskoye dispute stems from a 1993 tender, won jointly by Amoco and Yukos, to develop the field with the understanding that it would be under a PSA. While the PSA awaits Duma approval, Yukos in recent weeks has backed away from its partnership with Amoco, saying it has no business relationship with the U.S. oil major.


One Western oil executive speculated Tuesday that Yukos' controlling shareholder, the Rosprom industrial group affiliated with Bank Menatep, could be stalling development of the field until it has the cash to meet its investment obligations.


Amoco's position, meanwhile, is unclear, despite the company's investment to date in the Priobskoye field of roughly $130 million.


The Amoco and Exxon flaps have "shaken the confidence" of Western oil companies doing business in Russia, Pe–a said.


The Exxon debate involves an arctic field in the Timan-Pechora region that Exxon last year won a tender to develop. Russia's Natural Resources Ministry, however, revoked the tender last month, allegedly because Exxon would agree to work only under a PSA that the Russians said was not part of the deal.


Exxon appealed to Chernomyrdin to overturn the ministry's decision, a scenario that likely will be reviewed by the investigative committee established by the Gore-Chernomyrdin Commission.


Pe–a added that Russian legislators, many of whom are wary of foreign investment, "were surprised to learn" that foreign investment plays a critical role in developing the U.S. oil and gas industry.


Foreign companies own 30 percent of U.S. oil refining capacity, 27 percent of retail gas outlets and 18 percent of U.S. oil reserves, Pe–a said. He pointed to British Petroleum as the largest producer of oil in the United States.