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. Last Updated: 07/27/2016

Exxon's Budget for Sakhalin-1 Ratified

The government said Wednesday that it approved ExxonMobil's budget and work plans for its Sakhalin-1 project, allowing the company to continue development after a two-month standstill.

A dispute between officials and the world's largest publicly traded oil producer over costs and plans caused the suspension at the project, which is operated under a production-sharing agreement. Exxon has also clashed with the state over its desire to export some gas to China.

The Authorized State Body, an oversight body led by the Energy Ministry, approved Sakhalin-1's budget and work plans for the year but demanded that Exxon provide extra explanations for some spending, the ministry said in a statement. The decision allows the project to proceed, it said.

Exxon will "remobilize work to continue development of the future phases of the project," spokeswoman Dilyara Sydykova said by telephone.

She could not immediately say whether the company would be able to catch up with the original work schedule.

Exxon said Feb. 13 that it had to suspend work on two offshore oil and gas fields, Odoptu and Arkutun Dagi, because it had not secured government approval of its plans, despite "taking every effort" to do so.

The Energy Ministry struck back at the time, saying Exxon had changed the previously approved concept of developing the fields and wanted to increase costs by half. Citing unidentified "experts," the ministry said it was expected that the company would reduce the budget by 15 percent to 20 percent but maintain the amount of work. Exxon cut costs by committing to do less work on the fields, the ministry said.

Sydykova said Exxon would not disclose the project's final budget for this year.

Neither the Energy Ministry nor Exxon said whether the approved plan included spending on a pipeline to export future gas volumes to China.

State-controlled Gazprom, which has a monopoly on gas exports, has long opposed Exxon's desire to build the pipeline, an option it has under the PSA. The government blocked Exxon's spending on designing the pipeline last year.

Approvals for the budgets and work plans for the other two consortiums operating under PSAs, Gazprom-led Sakhalin-2 and France's Total-led Kharyaga, also came later than usual -- in early February and late March, respectively. Even so, those projects did not halt development.

Under a PSA, a foreign oil company is normally entitled to a portion of a field's oil and gas to help recover the costs of development, which means that the company's share grows as costs climb.

The project's other partners are Japan's Sakhalin Oil and Gas Development Company with 30 percent and Rosneft and India's ONGC Videsh, which each have 20 percent.