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. Last Updated: 07/27/2016

Sibneft Inks $60M Drill Deal With U.S. Pride

Beleaguered by the Prosecutor General's Office and disappointed by a downward revision in reserves, oil major Sibneft hopes to see its luck change with the signing of a $60 million contract with a Houston-based drilling company.

"Pride International will allow us to expand our technological capabilities," said Andrei Matevosov, Sibneft's vice president for exploration and extraction operations, at a news conference Tuesday.

Earlier this month, Sibneft announced that the amount of its probable and possible reserves substantially decreased from 2000 levels, according to an audit by Miller and Lents. The No. 5 oil company — as well as others in the industry — is faced with the problem of finding more reserves to stay competitive.

Under the contract, Pride will drill a series of horizontal wells in the southern part of the Sugmut field, which holds about a billion barrels of reserves. Sugmut — located in Siberia's Yamal-Nenetsk autonomous district — is one of the largest undeveloped fields in Russia.

Work on the first well will begin this fall, and the others will be completed over the subsequent 16 months. The contract is guaranteed by Coface, a French export credit agency.

Pride — known for the drilling techniques it applied in the Gulf of Mexico and Latin America — will be digging into Russian soil for the first time.

Dominique Dupuis, a head drilling engineer, said he has no reservations about working with a Russian company under the kind of contract Pride has signed with Sibneft.

"I will lose some sleep," Dupuis said. "But I lose sleep with any big drilling project."

Sugmut was readied for exploitation in the 1970s, but drilling was put on hold until 1993. After several years of preparatory work and plans for 230 wells, the project was canceled because "there were some serious questions about the high level of expenses," Matevosov said. "It was recognized as unprofitable."

Under the current plan, Pride will drill eight horizontal wells. Each one will be much more expensive than a standard vertical one, but the amount of oil available for extraction will be much bigger.

Drilling will be scheduled year-round, but may have to be interrupted if temperatures fall below minus 40 degrees Celsius, Dupuis said. At that temperature, some metal components can weaken and further drilling might cause damage.

At the news conference, Sibneft representatives didn't seem bothered in the least by the last move by the Prosecutor General's Office, which recently reopened a case against Sibneft.

The prosecutor's office is investigating Sibneft executives for theft and large-scale tax fraud involving value-added tax payments.

Alexander Korsik, Sibneft's chief operating officer, said he was not worried about the government's new interest in Sibneft's tax record.

"Time will tell," Korsik said.

In August, Tax Police seized documents at Sibneft, which is controlled by Roman Abramovich, a Kremlin-connected tycoon who was elected governor of the remote Chukotka republic last year.