Our Arctic Neighbors: Russia needs more offshore explorers

Russian law places too many burdens on the two major state-owned oil and gas companies and should be changed, deputy minister says

Sarah Hurst

For Petroleum News

More companies, including foreign ones, need to be involved in Russian offshore oil and gas activities, the country’s deputy minister of natural resources, Sergey Donskoy, said recently. Donskoy was speaking at a meeting of the government’s Marine Board, the Ministry of Natural Resources said in a release March 30.

“To activate the opening up of the shelf there is an urgent necessity to change our legislation and, above all, expand the list of entities that have the opportunity to work on the shelf by changing the requirements placed on potential developers,” Donskoy said.

Under current Russian law, as amended in the summer of 2008, only state-owned giants Gazprom and Rosneft meet the criteria to be awarded offshore exploration and development licenses. The law says that such companies must have been established according to the laws of the Russian Federation, have more than a 50 percent share of state ownership and have at least five years’ experience of Russian offshore activities.

For gas fields it would be beneficial to establish that besides Gazprom, developers of the resources could include its subsidiary companies and foreign partners brought in by it with less than a 50 percent share in the projects, Donskoy said. For oil, the developers could be Rosneft and its subsidiaries, other Russian oil companies with the requisite financial and technological potential and again foreign companies with less than a 50 percent share (as stipulated by Russian law), he said.

“On the one hand this approach will allow us to attract the necessary financial resources and technology to study and open up the shelf, and on the other hand it will ensure that we retain government control over the development of projects,” Donskoy said. Another change in the law that needs to be made is to acknowledge geological exploration as an independent activity, he added.

“At the moment there is no such thing as an exploration license for the shelf — exploration activity can only be conducted within the framework of an exploration and development license, and only by state companies,” Donskoy said. “We need to help our state companies share the risks of working on the shelf. The opportunity to obtain a license for this type of use of the resources should be offered to all interested parties, including foreign ones.”

As an incentive there should be a government guarantee that any entity that discovers an oil or gas field gets either a non-controlling share in a consortium with a state company to develop the field, or fair compensation for its loss, Donskoy suggested.

Gazprom and Rosneft invested 56.4 billion rubles ($1.9 billion) in their Russian offshore activities in 2008, according to the ministry. Russia’s Ministry of Economic Development has estimated that more than 9.3 trillion rubles ($318 billion) needs to be spent on this activity by 2040. In the most optimistic scenario it would take the state companies 165 years to develop Russia’s offshore resources, the release said.