Russian Minister: TNK-BP Plans to Cut Idle Wells by 2011

MOSCOW, Nov 13, 2006 (Dow Jones Newswires)

Russian Natural Resource Minister Yuri Trutnev said Monday he is in principle satisfied with a plan presented by Anglo-Russian oil producer TNK-BP (TNBP.RS) to cut the number of idle wells at its fields, news agency Interfax reported Monday.

"I'm satisfied on the whole with the presentation," Trutnev said. "The company is planning to cut by half the number of idle well in two years."

That is part of a broader $2.5 billion program drawn up by the company for its production wells through 2011.

A check carried out by the ministry earlier this year found that 39% of TNK-BP's production wells were being kept idle, something the Natural Resources Ministry said violated the terms of the company's licenses to operate the fields.

Trutnev's comments represent some welcome relief for the TNK-BP, which has come under pressure from Russian authorities in recent weeks as a result of alleged violation of its license obligations at the giant Kovykta gas field and alleged criminal activity at Rospan, another gas subsidiary.

However, a statement issued later by the Ministry quoted Trutnev as warning the oil industry it can expect stricter supervision of its activities in future.

"A whole range of indicators important for both the state and for oil companies, such as the rate of oil output and the rate of utilization of associated gas, among others, are being systematically unfulfilled by natural resources companies," Trutnev said.

A statement released later by TNK-BP, the company said it had already reactivated 4,500 wells and plans to rehabilitate another 2,000 in 2007. It also said it will abandon 360 wells it considers exhausted or unusable.

TNK-BP said it will invest a total of $2.2 billion by 2011 to reduce the idle well count. Of this, it noted, $611 million will be spent next year.

As a result, TNK-BP said it expects idle wells to represent only 31% of its total number by the end of 2007, and 20% or less by the end of 2009.

In addition to TNK-BP, OAO Lukoil Holdings (LKOH.RS) has also come under similar pressure from the authorities in recent weeks. The environmental regulation arm of the Ministry of Natural Resources threatened in October to revoke 20 of its oilfield development licenses for non-fulfillment of its obligations.

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