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. Last Updated: 07/27/2016

State Welcomes All to Lift Oil Output

VedomostiAnatoly Ledovskikh
PARIS -- Russia plans licensing rounds for several hundred offshore and onshore oil blocks for both local and foreign firms in order to stem slowing crude production growth and boost reserve replacement rates, a senior official said Wednesday.

Anatoly Ledovskikh, head of the Federal Subsoil Resource Use Agency, said the government was worried that oil production was not growing as fast as earlier this decade and reserve replacement among Russian oil firms was less than 100 percent.

"In the last 15 years, the distinct trend of reserve growth rates lagging behind production levels has become evident. This is mainly due to inadequate exploration activity," Ledovskikh told a conference in Paris organized by the Energy Exchange.

Ledovskikh said that in 2004, oil reserves grew by less than 240 million tons (1.7 billion barrels), while 458 million tons were produced. Similarly, gas reserves grew by 582 million cubic meters, while production was 592 million cubic meters.

"The main task is to reverse this trend by 2010," he said.

"Current levels of exploration investment are inadequate and should at least double. We must substantially increase the number of sites offered to private companies in the most attractive areas."

Analysts are concerned that Russia's crude production, which has soared by 50 percent since 1999, appears to be tapering off just when spare capacity elsewhere is also tight and demand is booming. Output growth has been more or less flat since last December.

International majors, struggling to replace reserves globally, are dismayed by the Kremlin's efforts to tighten control over Russia's oil industry and its proposal to bar foreign companies from some of the most attractive assets.

They say that without their expertise and capital, progress on new exploration and drilling may be slower.

Ledovskikh said the issue had been blown out of proportion, adding that there would ultimately be very few projects off-limits to foreign firms. They would be welcome to participate in the 270 licensing blocks that will be up for grabs this year, he added.

"There is as yet no concrete and complete list of projects from which foreign investors will be barred," he told reporters. "So far, there are four or five projects, including a gold deposit and a copper mine. I do not think there will be a full list until after the new subsoils law is passed by the parliament."

"It may be a desirable option to go in with a Russian partner, but in most cases it will not be compulsory," he added.

"There may be some projects that will be considered strategic. Decisions will be made on them individually. License auctions for some sites that we had doubts about such as the Trebs and Titov [fields] have simply been postponed until there is more clarity."

Ledovskikh said the new area of focus would be eastern Siberia, a largely unexplored oil province that he said could ultimately yield over 50 million tons and 60 billion cubic meters of gas per year.

The agency plans to auction over 200 eastern Siberian sites, with licenses for 30 projects to be awarded by the end of 2005.

"This will create a new direction of export supplies to satisfy the demand of the Asia-Pacific region," Ledovskikh said.

Eastern Siberia is seen as the main source of oil to feed a planned $10 billion pipeline that will run to Russia's Pacific coast to tap into markets in Japan, China, Korea and the U.S. West Coast. Most of Russia's production of over 9 million bpd comes from Western Siberian fields.

Ledovskikh said licensing rounds would also be held for offshore and onshore blocks in northwestern Russia. "A similar program will be worked out for the northwest of Russia by the end of 2005, aimed at creating a new large oil and gas production center," he said.