Russian Oil Firms Complain over Access to Fields

MOSCOW (Dow Jones Newswires), Oct. 7, 2010

Russia's decision to restrict access to the first major oil and gas field tender in five years has caused outrage among the country's industry titans, who say the Kremlin's claimed push for transparency and fair access to the country's energy reserves is going nowhere.

Russia has tightened its control of the oil and gas sector in recent years, making it harder for foreign or non-state companies to get access to strategic reserves and causing output to stagnate, and senior government officials have recently argued more private money is needed in the sector to keep up production after investments dropped sharply during the financial crisis.

The highly-anticipated auction of two Siberian oil fields, Trebs and Titov, due in the beginning of December, is seen as a test of the government's new rhetoric, as industry majors including Russia's biggest independent Lukoil Holdings and BP's Russian joint venture TNK-BP were expected to be participating.

Last week, however, Russia's Ministry of Natural Resources said their applications hadn't been filed correctly and excluded them from the list of bidders, leaving Surgutneftegaz and Bashneft--both considered to have close ties to the Kremlin--as only bidders.

No one at Surgutneftegaz or Bashneft were available for comment.

Lukoil was seen as the lead contender for the auction, as the company already has infrastructure in the area. The company's Vice President Leonid Fedun accused the government of unfair treatment and said "resource nationalism" was to blame for difficulties getting with access to reserves.

Analysts say that if the government was truly concerned about maximizing its payoff from these fields, it would have made sense to pick Lukoil.

"It's important to understand that decisions in Russia aren't always driven by pure economic factors," said Artem Konchin, analyst at UniCredit. "Instead, political issues are often decisive."

Lukoil says it is cutting down on investments in Russia, due to lack of clear rules from the government.

"Because we have limited access to reserves inside Russia, we are now focusing on expanding abroad," Fedun said this week at an investor conference in Moscow. "All we want is clear guidelines, so that companies understand the rules of the game."

The comments came a day after Prime Minister Vladimir Putin rolled out the red carpet for foreign investors at the same conference, talking of the government's efforts to create a more investor-friendly environment.

In its shift of focus, Lukoil has taken on development of Iraq's West Qurna-2 projects--one of the biggest oil fields in the world--in partnership with Norway's Statoil, and is drilling deepwater wells off the coast of Ghana and Ivory Coast in West Africa.

TNK-BP--Russia's third biggest oil producer--said last week it would challenge the decision to exclude them from the Trebs and Titov auction. TNK-BP is continuing investments in Russia, but like Lukoil is also actively seeking to expand abroad. The company is in talks to buy BP's assets in Vietnam and Algeria and is also seeking projects in Iraq and Venezuela.

Russia is the world's biggest oil producer, but output has stagnated around 10 million barrels a day as production from fields in West Siberia--the country's main production area developed during Soviet times--is falling, while few new fields are being developed.

"Only after the government sees a significant drop in output from West Siberia, the necessary measures will be taken," said Lukoil's Fedun.

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