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. Last Updated: 07/27/2016

19 LUKoil Licenses Are Under Threat

LUKoil on Friday became the latest oil major to face pressure from the government over purported environmental violations and development delays.

The company may lose 19 licenses in the northern Komi republic and Khanty-Mansiisk autonomous district, the Natural Resources Ministry's environmental regulator said.

Federal inspectors found LUKoil was behind schedule in prospecting for oil, drilling and starting production at 11 fields in Komi, said Oleg Mitvol, deputy head of the regulator, the Federal Service for the Inspection of Natural Resources Use.

Other violations at these and the other fields included heavy pollution and illegal cutting of trees to make way for oil pipelines, Mitvol, who headed the group of inspectors, said in a statement from the area.

"It is clear now that at some of the deposits, the company will not be able to eliminate the violations, so the threat for the licenses to be withdrawn is quite serious," said Natural Resources Ministry spokesman Yevgeny Snegiryov, Reuters reported.

LUKoil said it was told to deal with the violations in August and September and that it was given up to six months to comply. The company promised in a statement to "do its best" to keep the licenses.

Part of the reason for the state's demands is that it wants state-owned Rosneft to consolidate assets in the region, said Chris Weafer, chief strategist at Alfa Bank.

A Rosneft subsidiary, Severnaya Neft, has the license to develop the Val Gamburtseva field just north of Komi -- in the Nenets autonomous district -- and has said it wants to bid for other fields in the region. It is likely to spar with LUKoil in the biddings.

"It is certainly possible that LUKoil may lose some of its licenses to Rosneft," Weafer said by e-mail Sunday.

After Rosneft -- and Gazprom -- end the consolidation of their asset base, the two national champions will focus on development of new projects, he said.

Valery Nesterov, an oil and gas analyst at Troika Dialog, suggested the government was pushing for more oil from the companies that in the 1990s obtained more reserves than they could handle.

"They work at the most profitable reserves and they simply put the others on hold," he said, Kommersant reported Friday. "As a result, the country is not getting a serious amount of oil."

President Vladimir Putin, in a meeting with Natural Resources Minister Yury Trutnev at the end of September, told the government to take appropriate measures against companies that did not fulfill their license agreements. He spoke after Trutnev complained that oil companies were leaving too many wells inactive.

In Komi, LUKoil improperly set up oil rigs in state-owned woodland, Mitvol said in a separate statement from his trip. The company also illegally cut trees along its pipelines, he said, citing unidentified environmentalists.

LUKoil also failed to clean up oil spills at some of its facilities despite reporting that it had, Mitvol said.

Residents of the Ust-Us village complained to Mitvol and Greenpeace activists that the development of oil fields was ruining their habitat and causing more diseases. "In particular, oil products substantially pollute the Kolva River every spring," Mitvol said.

He immediately pointed to "companies that work in close contact with LUKoil" as the likeliest source of pollution. An investigation has been ordered, the statement said.

LUKoil vice president Leonid Fedun said his company was striving to do all it could to preserve nature. "Any activity causes some kind of damage to nature, just like cars in Moscow also damage nature," Fedun said Friday on Vesti 24 television.

LUKoil runs 406 fields in Russia and 17 fields abroad. United States-based ConocoPhillips owns almost 20 percent of the company.

The government last month accused Sakhalin-2, a Royal Dutch Shell-led project, of breaching environmental legislation. That move came in a dispute over Shell's decision to raise development costs, which would delay the time it took Russia to get oil.

More environmental problems may arise when Natural Resources Ministry officials visit the Khanty-Mansiisk autonomous district later this week to inspect compliance of other oil companies, including Rosneft, Surgutneftegaz and TNK-BP.