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Exxon Gets the Run-Around in Russia

The Moscow Times is reporting that executives from oil major ExxonMobil are beginning to complain about numerous delays caused by the Russian government over the development of Sakhalin-1.  In the past we’ve speculated about who the Kremlin would steal from next in the Sakhalin projects (they have already gutted Royal Dutch Shell, and managed to get them to say “thank you” afterward), and it looks like a good time to be a politically connected state-owned company.

The operator of the Sakhalin-1 project has clashed with the government over the terms of its production-sharing agreement, which exempts the venture from restrictions on gas exports. Exxon Neftegas Limited has faced pressure from Gazprom to scrap plans to export the prospective gas to China in favor of selling it to the state-controlled company.

TheEnergy Ministry said late Friday that Sakhalin-1 must cut its budget by15 percent to 20 percent, in line with reductions at other projects,including Sakhalin-2. The cuts must focus on optimizing costs –including for materials and services — rather than halting work, whichwould delay the project’s launch, the ministry statement said.

Theconflict comes days after an Energy Ministry-led body approved thebudget for Sakhalin-2, a rival multinational offshore project. TheGazprom-led Sakhalin-2, which operates under a PSA with Royal DutchShell, is preparing to launch Russia’s first liquefied natural gasplant on Wednesday.

After sustained pressure over purported environmental violations, Shell handed over control of the project to Gazprom in 2006.

ExxonNeftegas has “no choice but to implement a controlled and orderlysuspension of work” on two fields off Sakhalin because the governmenthas not approved its investment plan for this year or supplements tolast year’s budget, ExxonMobil spokeswoman Dilyara Sydykova saidFriday, before the ministry’s statement.