ANALYSIS: Russia to keep state companies' monopoly on offshore reserves
Moscow (Platts)--25Jan2013/633 am EST/1133 GMT
Any feasible liberalization of access to Russia's vast offshore
hydrocarbons reserves remains unlikely, according to the government's latest
round of discussions on the matter, despite numerous recent comments by
officials suggesting an expansion to other players may be on the cards.
Russia does not have plans to grant foreign players independent access
to development of its offshore reserves, Deputy Prime Minister Arkady
Dvorkovich said Tuesday, commenting on the results of the recent discussions.
"Foreign companies will keep acting as technical partners but not as
actual license holders," Dvorkovich said.
Private Russian companies may eventually gain limited access to the
offshore reserves, although analysts question whether they would be
interested if recent proposals by the government are approved.
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The government is considering granting them the right to develop only
those offshore blocks that are of no interest to national state-run companies
and have been returned to the state, Natural Resources Minister Sergei
Donskoy said last week, after the most recent governmental meeting on
offshore development last week.
And even in the case of these blocks, private developers would need to
invite state companies to enter a project as a partner in the case of any
No final decision on access for domestic private companies has been
made, though, and the discussion is set to continue, Donskoy said.
Initially, a government decision on offshore liberalization had been
expected by the end of 2012. But analysts said it is now unlikely to come any
Under Russian law, only state-controlled companies with no less than
five years of operating history in Russia's offshore zone can develop such
reserves, with only Rosneft and Gazprom meeting the criteria.
The law has been widely criticized by oil companies and some government
officials as it has caused a high level of monopolization of the reserves,
restricting their development.
The pace of work by Rosneft and Gazprom under already-issued offshore
licences has been insufficient, Donskoy said last week. Over 2008-2010, just
11 wells were drilled and four fields discovered, compared with 110 wells
drilled and 44 discoveries made over the same period in Norway, he said.
Last April, four major Russian oil producers -- Bashneft, Lukoil,
Surgutneftegaz and TNK-BP -- asked then president-elect and prime minister
Vladimir Putin to consider providing wider access to development of offshore
reserves, after he expressed his support for the idea earlier that year.
Such a measure would help create the necessary infrastructure, provide a
stimulus for Russian hydrocarbon producers to explore the region and raise
the country's hydrocarbon production, they said in a letter to Putin.
Among the four companies, however, Lukoil is the only one that has
experience in developing offshore reserves. Lukoil is active in the southern
Caspian Sea where it made several discoveries before the offshore law
limiting access to the area to private companies was introduced in 2008.
NEW DECISIONS LIKELY IN MEDIUM TERM
Although ministers said discussions are continuing, the impact of any
decisions in the short term is likely to be negligible as Rosneft and Gazprom
have already secured control over around 80% of the country's offshore
territory with oil and gas potential.
"If all the requests [by the companies for new blocks] are granted,
state-run companies will receive up to 80% of the oil and gas blocks. This
would mean that all those blocks -- half of which are as big as medium-sized
European countries -- would be booked by the companies for 10 years," Donskoy
The natural resources ministry is currently considering Rosneft's
requests for 12 licenses and Gazprom's requests for 17 that are expected to
be granted in the near future, he added.
Any feasible decisions on offshore access are likely to come in the
medium term rather than sooner and would depend on three main factors, said
Valery Nesterov, an analyst from Sberbank CIB.
These are: the results of offshore exploration work to be carried out by
Rosneft and its foreign partners; the company's ability to meet its license
obligations to explore and develop the offshore reserves; and the dynamic of
the country's crude production from onshore reserves.
Another key factor would be the general situation on international
markets, including oil prices and demand, he added.
Russia's total crude production has been steadily growing over the last
decade, hitting another post-Soviet record at 518 million mt (10.36 million
b/d) in 2012.
The production growth was mainly due to wide-scale implementation of new
technology, such as horizontal drilling and hydraulic fracturing, as well as
development of new oil provinces such as East Siberia. The effect of those
projects has been diminishing, however.
The country's oil output "will probably peak in the next few years as
the gains from new oil fields are offset by falling output from brownfield
sites, while large-scale development of Russia's hydrocarbons-rich
continental shelf has barely begun," Fitch Ratings said Tuesday.
The country's offshore recoverable reserves are estimated at around 100
billion mt of oil equivalent, mostly gas, but the area is mainly
underexplored and it remains to be seen if any other major discoveries will
be made in the Arctic.
The key issue currently is whether oil discoveries will be made, as
Russia hopes its offshore reserves will help compensate for an expected
decline in crude production from onshore fields after 2020, analysts said.
With regard to gas, Russia still has substantial onshore reserves,
development of which is less capital intensive than those in the Arctic sea.
Under a draft long-term development program for the country's offshore
areas, crude production from Russia's offshore projects is set to jump
fivefold to 66.2 million mt/year (1.3 million b/d) by 2030, compared with 13
million mt in 2011.
Gas production is expected to rise to 230 billion cubic meters/year by
2030, up from 57 Bcm produced from the offshore in 2011.
Russia estimates that it needs to attract about $500 billion in offshore
reserves in the next 30 years, and in early 2012 the government announced
various tax incentives to encourage investment.
The decision helped Rosneft to accelerate work in the area. Last year,
the company teamed up with ExxonMobil, Italy's Eni and Norway's Statoil to
develop its most promising blocks in the Arctic and in the southern Black Sea.
Drilling of the first exploration wells in the Kara Sea -- where Rosneft
is to explore and develop three blocks with ExxonMobil -- is scheduled for
The company has already started seismic work in the area, a year ahead
of its previous plan, Rosneft said in August.
The form of cooperation between Rosneft and foreign companies, which are
to bring in their expertise and capital, is likely to be the key form of work
offshore Russia at least in the near future, said Constantine Cherepanov, an
analyst from UBS bank.
"The access to offshore reserves will hardly be liberalized soon and
foreign companies and Russian private firms are unlikely to be able to work
independently there," he said.
"The status quo will be maintained, with Rosneft and Gazprom continuing
to prevail," agreed Ildar Davletshin from Renaissance Capital.
--Nadia Rodova, email@example.com
--Edited by James Leech, firstname.lastname@example.org