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 discovery.

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 time soon.

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 said.

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 2014.

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, nadia_rodova@platts.com
--Edited by James Leech, james_leech@platts.com

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