11 Jun 2009 14:30

Foreigners want minority stakes, not compensation for discovering mineral deposits

MOSCOW. June 11 (Interfax) - Foreign companies oppose the practice of compensation for discovering mineral deposits of federal importance and would rather operate as minority shareholders in oil and gas projects in Russia, said Yevgeny Kuvshinov, a representative of the Petroleum Advisory Forum (PAF), which represents Shell, Exxon, Chevron and others.

The foreign majors are interested above all in investing in projects that guarantee their entitlement to a share of hydrocarbons extraction, Kuvshinov said at a roundtable on oil and gas industry legislation.

Amendments to the Law on Subsurface Resources state that companies discovering a field of federal importance during the course of exploration are not automatically entitled to a development license. It is for the government to decide whether to award that license. If the government decides not to award the license, the company is entitled to compensation for costs incurred.

"The latest amendments have effectively brought foreign investment in the Russian oil sector to a halt. They only guarantee foreign companies a role in exploration. Specialized exploration companies exist throughout the world for that, although they don't yet work in Russia," Kuvshinov said.

Setting up joint ventures with foreign companies that discover fields might be one way to get round the problem. "A foreign company that discovers a field might not necessarily want all of it. We're prepared to act as junior partners in joint ventures to work these fields, both with privately owned and state-owned companies," he said.

But this, too, is flawed as the law does not even give clear guarantees that a state company involved in such a joint venture is entitled to a development license, he said.

In addition, a company wanting to be involved in offshore projects would have to have five years of experience operating on the Russian shelf. "The Russian Natural Resources Ministry interprets this as meaning a company has to have held a license for five years, not real experience of offshore work," Kuvshinov said. State companies cannot, as a result, contribute these licenses to a joint venture, even if they own more than half of the equity. "We propose removing joint ventures between state and foreign companies in which we work as junior partners from the scope of the subsurface law," he said.

Another option might be to conduct individual negotiations with the government regarding licenses. "A foreign company might also be able to secure approval to develop a field from a special governmental commission, with guarantees that the development license will be granted," Kuvshinov said.

Lukoil is in favor of automatically transferring production licenses to companies that discover deposits. Lukoil is due to round off exploration at the Tsentralnaya (Central) structure in the North Caspian, where it has discovered a deposit, in October this year.

The Natural Resources Ministry has said it is drafting amendments to the subsurface law regarding the transfer, to the subsidiaries of state companies, of licenses to produce oil at federal deposits.

Russian Deputy Prime Minister Igor Sechin said on June 10 that companies that discover federal deposits but which have not obtained licenses would be compensated for all costs.