Report for three

The Ministry of Industry and Energy reported on the status of PSA projects

Minister of Industry and Energy Viktor Khristenko yesterday presented the text of a report to the government on the implementation of production sharing agreements in 2006. On 76 pages, it sets out in detail and systematizes all the numerous problems of the three projects that Russia handed over to consortia (mainly foreign investors) in the form of PSAs in the mid-90s. The materials of the report especially clearly demonstrate how stupid and ineffective the implementation scheme for the Sakhalin-1, Sakhalin-2 and Kharyaga projects was. Moreover, regardless of the presence of state-owned companies among the shareholders. Sakhalin-1, where 20% belongs to Rosneft structures, has even more problems than the other two. There just wasn’t much noise and public complaints from government agencies. This means that even with the appearance of Russian participants in the Sakhalin-2 and Kharyaga projects (this task is number one in the report in the corresponding section), the difficulties will not disappear. It’s just that after this, officials will talk less about them out loud.

While Sakhalin Energy (the operator of Sakhalin-2) was subject to inspections by Rosprirodnadzor and was accused of wanting to harm Russia’s interests by doubling the estimate, and the French Total (the main participant in the Kharyaga PSA) was accused of not fulfilling production plans, Exxon Neftegaz (Sakhalin-1) changed the entire project implementation scheme and... silence. In particular, the company postponed the commissioning of one of the three fields - Odoptu - from 2006 to 2009 and concentrated on the development of the Chayvo field. And it actually disrupted the entire schedule of gas production and supplies. Moreover, according to the report, last year Exxon Neftegaz flared a third of its gas production (377 million cubic meters). But no state-sanctioned campaign against Sakhalin-1 followed. Moreover, on December 14, state representatives agreed on the independent development of Chaivo. The operator was also asked to coordinate with Rosnedra changes in technological indicators for the development of the Chayvo and Odoptu fields. In addition, during 2007, Exxon Neftegaz was obliged to submit to government agencies a new scheme for the development of the Odoptu and Arkutun-Dagi fields, as well as the Chaivo gas stage.

Of course, everyone knows perfectly well that the operator cannot increase gas production within the framework of the Sakhalin-1 project (and this is precisely what the change in the development concept is connected with) due to the unresolved issue of gas exports. Initially, it was assumed that the gas would go through an underwater gas pipeline to Japan. And after the Japanese made a choice in favor of liquefied gas, priority was given to supplies of blue fuel to China through the Khabarovsk Territory. The report states that on October 19, 2006, Exxon Neftegaz signed an agreement of principles with China's CNPC, which provides for the supply of 8 billion cubic meters of gas per year for 20 years, starting from 2011-2013, with the right to extend for 10 years. In parallel, negotiations are underway with Gazprom, which is not going to cede its exclusive right to export gas even to the operator of the PSA project (according to the law “On Gas Export”, only they are subject to Gazprom’s monopoly). However, this conflict of interest with Gazprom did not cause any special persecution of Exxon Neftegaz by the authorities. Obviously, the presence of Rosneft among the shareholders has a magical effect on officials.

Even the fact that the Sakhalin-1 participants had to lose part of their oil reserves (75 million tons) because they failed to convince the Ministry of Natural Resources to expand the licensed boundaries of the Chayvo field to include the adjacent oil-bearing area, which was not included in the PSA, confirms this thesis . Rosneft declared its own interest in this area, which means that the consortium had no chance of getting it for itself.

It should be noted that the main task of government agencies in relation to Sakhalin-2 is the approval of a new estimate and the inclusion of Gazprom’s project, and not at all the elimination of environmental violations. The report even states that fines in the amount of 713 thousand rubles were imposed on Sakhalin Energy for violations. (about 30 thousand dollars). It is also reported that the plan submitted by the operator to Rosprirodnadzor to eliminate violations was not accepted due to the lack of “engineering and technical solutions” in it. However, the true reason, as the Vremya Novostey newspaper already wrote, was revealed by Gazprom board member Bogdan Budzulyak. From his words it followed that the foreign shareholders of the projects do not want to bear the costs of eliminating violations, but intend to share them with the new participant - Gazprom. Actually, because of this, the process of completing the transaction and approving a new estimate is slowing down.

In addition, the report states that the work of PricewaterhouseCoopers on auditing costs within the framework of the Sakhalin-2 project was recognized by the Russian side as “unsatisfactory due to constant comments regarding the execution of audit reports and the amounts of reimbursable costs.” At the request of the Russian side, a new competition was held to select an audit company, according to the report of the Ministry of Industry and Energy, which was won by the Russian company Finexpertiza.

The Ministry of Industry and Energy has few questions or complaints regarding the operator of the Kharyaga PSA project of the French Total, although recently the parties were going to sort things out in an international court. The main task set by the Ministry of Industry and Energy for Total this year was the transfer of a 20 percent share in the project to a Russian company. As a Russian partner, the ministry proposed Total's old partner in Kharyaga, LUKOIL, which has held an option on this stake since 2000. As noted in the report, this year the ministry independently sent two requests to LUKOIL in January and March with a request to tell about its plans for this project. “These were formal requests to find out whether the company would be part of Kharyaga or not. If they don’t want to participate, then we will look for other companies,” the Ministry of Industry and Energy explained to Vremya Novostei. LUKOIL says that they have not yet made a decision on participation in the development of Kharyaga: “This is a complex project, we have some complaints about the management, but now the operator has applied to government agencies to change the terms of the project, so we are still thinking.”

Now Total is petitioning Rosnedra to change the technological scheme of the project, which will allow the company to secure production of 1 million tons until 2010 and about 1.58 million tons in 2011-2015. Whereas, according to the first plan, the maximum level of production at Kharyaga should have been about 3-3.5 million tons. Rosnedra has not yet made a decision on the new technical design for Kharyaga.

Anna GORSHKOVA, Alexey GRIVACHS