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. Last Updated: 07/27/2016

Conoco, Total Push for Barents Sea PSA

U.S. energy giant ConocoPhillips said Friday that it and France's TotalFinaElf will try to reach an agreement to develop a giant natural gas field in the Barents Sea.

Houston-based ConocoPhillips, the world's No. 6 energy company, and TotalFinaElf each want a 25 percent stake in the Gazprom-led Shtokman project, said Eric Bell, president of Russian operations for ConocoPhillips.

The energy companies hope to reach an agreement with Sevmorneftegaz, which was set up by affiliates of Gazprom and state oil company Rosneft and holds the license to the field, by the end of 2003. Sevmorneftegaz was created as a joint enterprise by Gazprom and Rosneft affiliates for the exploitation of Arctic oil and gas resources.

Discovered in Soviet times, Shtokman is estimated to hold 3.2 trillion cubic meters of natural gas, enough to supply the whole of Western Europe for six years. The project to develop it, however, has seen many foreign consortiums come and go as it was never granted a production sharing agreement, which is needed as investment insurance to offset political risk.

The last agreement -- forged between Gazprom, ConocoPhillips, TotalFinaElf and two other companies -- expired in September.

Bell said each company is ready to invest $10 billion in Shtokman's first stage, which aims for an annual production target of 22 billion cubic meters per year.

"[But] if Russia fails to implement a matching PSA it will create a massive lack of confidence. We and other companies will simply not be able to do anything," Bell said.

The government this month formed a commission to help work out the details of a PSA deal.

Bell also said ConocoPhillips, which wants to tap oil fields in Russia's north, is skeptical about plans by Russian oil majors to build a huge Arctic port to ship crude to the United States.

ConocoPhillips is ready to build its own export routes and go ahead with a $2 billion upstream investment in Russia's north but only if Moscow guarantees a matching PSA, Bell said.

"Murmansk is an ambitious and very expensive project, which will probably need state help. We have to see and wait how the project develops but so far we do not consider it as our main export option," he said.

LUKoil, Yukos, TNK and Sibneft agreed in November to build a multibillion-dollar export terminal in Murmansk, Russia's only ice-free Arctic port.

No foreign firm has so far joined the project, but Conoco was seen as one of the most likely participants because the main pipeline from western Siberia to Murmansk will be laid near its rich but untapped oil fields in Russia's north.

"You have to line up politics and economics. You have many firms involved in the project and it may take longer [to implement it] than those companies believe," Bell said. (AP, Reuters)