Russia OKs work at country's three PSAs in Sakhalin and Siberia

Moscow (Platts)--5Sep2005

Russia's intergovernmental commission on production-sharing agreements
has approved the pace of development on three crude oil and natural gas
projects in 2004 after considering their technical, financial and
ecological results, Russian industry and energy ministry said Monday. 

     The PSA projects under review include Sakhalin 1 and Sakhalin 2 offshore
the Sakhalin Island in the Russian Far East and the Kharyaga oil field in the
western Siberian Timan-Pechora province.

     The ministry also said the commission plans to consider a mechanism to
control expenditures by PSA operators by the end of September. The lack of PSA
controls had caused the government to abandon some PSA projects providing for
reimbursement of the expenditures to the investors. 

     But Russia would like to revive the agreements for capital-intensive
projects to help the country to tap its huge mineral resources located
offshore Russia.  

     The ministry said one of the main aims for the Sakhalin 1 project is an
adjustment of Chayvo oil field's boundaries. The ExxonMobil-led consortium
developing Sakhalin 1 plans to pump first crude from Chayvo by the end of 2005
at a cost of $4.19-bil. 

     Total investment in the Sakhalin-1 oil and gas project, including the
Chayvo, Odoptu, and Arkutun Dagi offshore oil fields, is estimated at over
$12-bil. The project's natural gas reserves are seen at 485-bil cu m and oil
reserves at 307-mil mt (2.2-bil bbl). ExxonMobil leads the project with a 30%
stake with partners Japanese Sodeco (30%), the Indian ONGC Videsh (20%) and
Rosneft (20%).

     The ministry also said the next stage of Sakhalin 2 project envisages
full-year crude production at the Piltun-Astokhskoye oil field to start in
2006, despite a recent announcement by Shell, which leads the project
consortium, that full-year production would be delayed until 2007. 

     Peak production at the field is expected to reach 8.5-mil mt/yr of oil,
the ministry said. Current oil production at Sakhalin-2 is limited to 200 days
of the year at 70,000 b/d because the sea is covered with ice, according to
the project operator Sakhalin Energy's web site.

     Gas deliveries from the Lunskoye gas field, a part of the Sakhalin 2
project, are to start in 2007, the ministry said. Oil and gas from the field
will be pumped via 800km (500 mile) of pipelines to a 9.6-mil mt/yr liquefied
natural gas plant being constructed in the southern part of Sakhalin Island. 
     The first 4.8-mil mt/yr LNG line is scheduled to start operating in 2007,
with the second line to follow in 2008, the ministry said. 

     The equity producers in the project are Shell (55%), Mitsui (25%), and
Diamond Gas-Mitsubishi (20%). Russian gas giant Gazprom hopes to enter the
project in 2006 after it agreed on an asset swap with Shell in July.

     The ministry also said that a Total-led consortium now aims to start the
full-scale development of the Kharyaga oil field in the Timan-Pechora region.
The ministry has approved a program for the field development until the end of
a 33-year PSA signed in 1995, a ministry's spokeswoman said, prodviding no
details. 

     Last week, the ministry said that it had approved Total's expenditures in
the PSA between 2001 and 2003 at around $400-mil. The move is to raise
investments in the project and to speed up a peak production at the field,
according to the ministry. 

     The Russian government and Total were in dispute over the cost of the
field development for several years after the local authorities accused Total
of estimating its expenditures into the project too high. The accusations
prohibited a supervising committee from approving reimbursement of the
expenditures to the investors. 

     Last year, a Total-led consortium produced around 1-mil mt of oil at the
field. A total production during the 33-year PSA is expected to reach 45-mil
mt. The Kharyaga field's reserves are estimated at 97-mil mt. Partners in the
project include Total with a 50% stake, Norway's Norsk Hydro (40%) and the
local Nenetsk national oil company (10%).

For more information, take a trial to Platts Oilgram News at
http://www.platts.com/Request%20More%20Information/

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.