Russian Minister Calls for Clear Deadlines in Oil Licenses

SURGUT Oct 24, 2006 (Dow Jones Newswires from the Wall Street Journal)

Russia's Minister for Natural Resources Tuesday called for amendments to existing oil and gas field development licenses that would bring clear development terms and timeframes for exploration and production.

In a meeting with state environmental regulators and prosecutors, Yuri Trutnev called for more coordination in monitoring and enforcing compliance with licensing agreements by oil and gas companies.

"We will ask the companies for changes in their licenses," Trutnev said.

In many licensing agreements, especially those signed during Russia's turbulent transition to capitalism in the 1990s "there was no timeframe for bringing fields onstream, nor a schedule for drilling...companies can just do whatever they want with their oilfields," Trutnev said.

He added, however, that state officials wouldn't set unrealistic deadlines for developing fields, but would ask companies to agree to concrete goals.

Trutnev has spent much of the last two and a half years working on a new law on subsoil that is supposed to streamline and clarify relations between government and natural resource companies. However, the cabinet hasn't yet even approved a draft of the bill to be sent to parliament.

Trutnev was speaking en route to the Far East island of Sakhalin, off Russia's Pacific coast, where he is due to inspect the extent of alleged violations of the Production Sharing Agreement law under which the Royal Dutch Shell-led (RDSA) consortium Sakhalin Energy Ltd. is developing the Sakhalin-2 project.

Trutnev criticized local authorities for being tardy in notifying the federal government of license violations, and said he had been informed of "massive and grave" violations at Sakhalin-2.

"Unfortunately, regional officials sometimes haven't told us that the (license-holding) company is in violation of the law," Trutnev said.

Sakhalin Energy has acknowledged a number of violations of environmental regulations but is due to present a plan for rectifying them to Trutnev Wednesday.

The consortium also faces pressure from another direction, as the government is refusing to acknowledge cost overruns at the project, that will reduce and delay its contribution to the Russian budget.

Copyright (c) 2006 Dow Jones & Company, Inc.

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