Russians Fight Foreign Oil Multinationals

Over $70 billion dollars worth of Russian oil and gas licences could become part of a legal dispute between Russia and a group of oil multinationals. There have been press reports that a spokesperson for the Russian Natural Resources Ministry, said that the Russian Government was considering withdrawing the licence for ExxonMobil’s Sakhalin I offshore project because its costs are set to surge by 20 per cent to $17 billion. Higher costs mean delayed profits for the Russian State.

Lawyers have suggested that this price hike is enough for the Russian Government to cancel Exxon’s licence. Total’s Kharyaga oilfield in northern Russia, could also have its licence cancelled because the project was not being developed quickly enough.

This comes hot on the heels of the move last week where the Ministry cancelled environmental approval for Sakhalin II, a $20 billion liquefied natural gas project by Shell. The Ministry has criticised all thse projects – called Production Sharing Agreements – for not generating enough taxes. The Russians believe that taxes from Shell’s Sakhalin II project could be as much as $400 million a year, instead of which “we receive about $20 million in royalties”.

The Western oil firms, meanwhile, are desperately gathering diplomatic and legal support to try to pressurise the State to observe the PSA agreements, signed in the mid-1990s. Most analysts said that the PSAs, in their present form, were doomed. Valery Nesterov, oil analyst at Troika Dialog, said: “They were signed in the 1990s, when the oil price was low and the Government was inexperienced. Now the state is much stronger, and more jealous of its natural resources.”

And PSAs are meant to be blueprint for the future of the oil industry – they are also being drawn up for oil exploitation contracts in Iraq. There could be trouble ahead..