Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Sakhalin Oil to Join PSA in Far East

Sakhalin Oil Co. is set to acquire a 10 percent stake in the Kirinsky block production-sharing agreement in the Far East in a move that will strengthen the Sakhalin region's grip on the $10 billion Sakhalin 3 project.

Sakhalin Oil will get a 5 percent stake from state-owned Rosneft and another 5 percent from its subsidiary Sakhalinmorneftegas, which together held a 33.3 percent stake in the PSA, said Galina Pavlova, an official with the Sakhalin regional government. Mobil and Texaco evenly split the remaining 66.6 percent.

President Boris Yeltsin paved the way for the deal this week when he signed a PSA law on Sakhalin 3.

The Kirinsky block, which is offshore of Sakhalin island and part of the Sakhalin 3 oil project, harbors estimated reserves of 450 million tons of crude and 720 billion cubic meters of gas, according to Sakhalinmorneftegas.

The foreign participants have yet to approve the inclusion of Sakhalin Oil in the PSA, United Financial Group analyst Stephen O'Sullivan said.

However, Kirinsky block operating company Pegastar has already given preliminary go-ahead to Sakhalin Oil's participation and Rosneft President Sergei Bogdanchikov has agreed to transfer the necessary stakes, Pavlova said.

Sakhalin Oil will split financing costs with the other PSA partners. Its share of $1 billion is expected to come from its portion of production sales in Sakhalin 3 and the regional government's stakes in the Sakhalin 1 and Sakhalin 2 PSA projects.

Sakhalin Oil, formed by the regional government last year, was set up to supervise all Sakhalin PSA projects and sell the region's share of crude from the projects, Pavlova said. Sakhalin Governor Igor Farkhutdinov has said the region will get 60 percent of the Russian share in the projects.

Sakhalin Oil plans to continue growing and has its eye on stakes in the East Odoptu block and the Ayashsky block of the Sakhalin 3 project, for which the State Duma is currently considering approving PSAs, Pavlova said.

Several weeks ago a government commission recommended that the Duma, Russia's lower house of parliament, give its consent. The blocks have estimated reserves of 114 million tons of oil and 513 bcm of gas and are shared by Exxon with 66.7 percent and Rosneft with 33.3 percent.

Meanwhile, Exxon plans to continue financing Rosneft's portion of the Sakhalin 1 PSA project until autumn, Pavlova said. Last fall, the U.S. oil giant and the Japanese consortium Sodeco agreed to cover Rosneft's share until May 18.

Rosneft holds a 40 percent stake in the Sakhalin 1 project. The company tried to sell half of its stake since it could not finance exploration, but a tender did not attract any bidders, UFG said. Exxon and Sodeco both hold 30 percent stakes in the project.