Source Pravda.Ru

Rosneft And TNK Fight For Sakhalin

Two Russian oil companies announced separately on Wednesday their plans to pursue hydrocarbons off the coast of the Sakhalin Island, an oil frontier previously regarded as the domain of the international majors.

Newcomer Tyumen Oil Co., or TNK, said it would invest $60 million to explore part of the area designated as Sakhalin-5. TNK is in proximity to state-owned Rosneft and BP, who on Wednesday agreed to create a joint company to search for deposits under the ocean floor.

"We are interested in Sakhalin for the exact same reasons other companies are interested in Sakhalin," said TNK vice president Igor Dibtsev. "We need to expand our resource base, and apparently Sakhalin is the best of what is left in Russia."

If the project proves viable, it would require $4 billion in total investment and the participation of international companies with offshore experience.

TNK's realization is old news to the likes of Royal Dutch/Shell and ExxonMobil, which have either reached or are fast approaching commercial production on their separate offshore blocks.

Sakhalin's offshore reserves -- estimated at more than 10 billion tons of oil equivalent (crude and natural gas) -- have drawn in foreign investors since the 1970s, when Japan and the Soviet Union began negotiations on the region's development. But what was once an exclusive club for foreigners is being penetrated by Russian companies, fast learners backed up by strong balance sheets.

Siberia, formerly Russia's primary oil basin, has become a very competitive environment, said Stephen O'Sullivan, an oil analyst at United Financial Group. At the same time, Russian companies are rethinking their limitations. It is possible they could take over as production operators at some projects that were once thought beyond their reach.

"Sakhalin-3, -4 and -5 are picking up speed because the early projects were able to light the way," O'Sullivan said.

As part of the Sakhalin-2 project, Royal/Dutch Shell has been producing oil since 1999 from an offshore platform and is planning, with Japanese firms, to build the world's biggest liquefied natural gas plant by 2006. Gazprom is considering joining Sakhalin-2.

ExxonMobil expects to produce its first oil at Sakhalin-1 by 2005.

The license for Sakhalin-3 is held by the PegaStar consortium, whose members comprise Rosneft, ExxonMobil and ChevronTexaco, all of which own equal stakes in the project. PegaStar is conducting exploratory work, and a production-sharing agreement, which would divide profits between the consortium and the government, is in the works.

In all, nine license areas have been delineated, and six have been tentatively spoken for.

BP teamed up with Rosneft in 1998 to develop Sakhalin-5, and the two companies said Wednesday they would set up a joint firm to explore and develop parts of this license area.

As part of their alliance agreement, Rosneft holds 51 percent of the project, while BP owns the other 49 percent. BP is to provide upfront financing for the exploration and plans to recoup these costs if and when commercial production commences.

The terms of Rosneft and BP's Sakhalin-5 agreement will probably be applied to their cooperation on Sakhalin-4, said Rosneft spokesman Dmitry Panteleyev. Rosneft already holds licenses in the Sakhalin-4 block.

"We have no problem with TNK coming into Sakhalin-5," Panteleyev said. "In fact, we welcome its participation because it says something about Sakhalin's attraction as an investment."

©

&to=http://www.rosneft.ru/english/index.html' target=_blank>ROSNEFT

&to=http://www.tnk.ru/mainpage_eng.asp?IDR=162&LANG=ENG' target=_blank>TNK

&to=http://www.bp.com/' target=_blank>BP

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