PSAs Under Attack in Russia

In a report from the Moscow Times about Gazprom and Rosneft’s increasingly friendly relationship, the reporter sheds some light on the last few remaining production sharing agreements with foreign energy companies. This disturbing trend of pressuring and bullying foreign investors does little to help Gazprom’s efforts to make acquisitions abroad. Excerpt:

Government officials have recently accused both French oil major Total and British-Russian venture TNK-BP of failing to fulfill the terms of their licenses to develop large oil and gas fields. Gazprom has repeatedly said it is interested in buying out the 50 percent stake in TNK-BP held by Russian shareholders, Mikhail Fridman’s Alfa Group and Viktor Vekselberg’s Access-Renova. Analysts agreed that they would likely sell this year when a contract clause obliging them to hold on to their 50 percent stake in the joint venture expires. A potential sale would also boost Gazprom’s stake in Slavneft. TNK-BP and Gazprom Neft, the Gazprom oil unit formerly called Sibneft, currently hold 50 percent each in the company. Gazprom took up the Slavneft shares through its purchase of Sibneft last year. Analysts believe a sale would ease TNK-BP’s problems at its flagship project, the giant Kovykta field in east Siberia. TNK-BP chief Robert Dudley said at the World Economic Forum in Davos, Switzerland, last week that he expected a deal to be reached by the middle of this year. The Kovykta project, run by TNK-BP subsidiary Rusia Petroleum, has come under fire for failing to fulfill production contracts that stipulate it produce 9 billion cubic meters of gas per year. But Gazprom has blocked the construction of a pipeline to China, and TNK-BP currently can only supply gas to a local market that uses just 1.5-2.5 bcm per year. “The rules aren’t defined yet. They will be once TNK-BP is settled,” Joseph Stanislaw, a senior energy adviser to Deloitte & Touche and the co-founder of Cambridge Energy Research Associates, said in a recent interview. The TNK-BP joint venture in 2003 marked the last large-scale entry into Russia by a foreign oil major. Most foreign projects date from the mid-1990s, when the state awarded three production sharing agreements, or PSAs, to develop oil and gas fields jointly. One of those projects, Sakhalin-2, has already made way for a majority Russian partner. Analysts say Total’s PSA at Kharyaga — facing steady criticism for allegedly failing to develop the field quickly enough — could be next. The third PSA, at the Exxon-led Sakhalin-1 project, will also likely face review, analysts said. Rosneft holds a 20 percent stake in the project.

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