Russian Oil Minister Still Wants Exxon in Sakhalin-3

Russia's Energy Minister Igor Yusufov said on Friday he wanted ExxonMobil and ChevronTexaco to keep the huge Sakhalin-3 project, but pay extra cash for the right to develop it.

Russia said in January it would offer Sakhalin-3 project, offshore remote eastern island, at an open tender, although a decade ago it had awarded it to Exxon and Chevron under a production sharing agreement (PSA).

PSA guarantees investors a stable tax regime for the life of the project, but Russia almost scrapped the PSA system last year, saying the regular tax regime was stable enough.

Exxon has said it is no longer seeking a PSA deal and is ready to tap Sakhalin-3 on a regular tax regime. The firm and the U.S. government have slammed Moscow's decision to tender the block, saying the move may damage cooperation between the two states in the energy sector.

"It must be a civilized decision, which won't violate investors' rights," Yusufov told reporters, saying Exxon had already invested $60 million in Sakhalin-3.

"I can't promise that it will be an auction...We in the ministry will do our best to help these companies remain the project participants," he said.

He said talks between the government and the firms would now focus on the amount of extra cash they should pay to keep the fields.

"Theoretically, reserves of only one, largest block (of Sakhalin-3) could be valued at $800 million," he said. He declined to say whether the government might ask the firms to pay exactly this sum to state coffers or when a final decision on the project's fate would be taken.

After legal changes last year, only three advanced PSA projects survived. These are Sakhalin-1 and Sakhalin-2, led by Exxon and Royal Dutch Shell and the Kharyaga project in Siberia, led by France's Total.

Dozens of other less advanced PSA plans have been de facto scrapped, including the Sakhalin-3 project, which is divided into several blocks.

The Sakhalin-3 Kirinsk block was led by Exxon, the world's largest oil firm by market capitalization, and included the second largest U.S. oil firm ChevronTexaco and Russia's state oil firm Rosneft. It is estimated to hold 450 million tons (3.3 billion barrels) of oil reserves.

The Sakhalin-3 East-Odoptu and Ayashsk blocks also include Exxon and Rosneft and are estimated to hold up to 100 million tons (733 million barrels) of oil reserves.

Exxon has pledged to invest $12 billion in Sakhalin-1 to produce the first crude by 2006 and to build a gas pipeline to Japan.