Our Arctic Neighbors: Russian company seeks stake in Total project

Kharyaga in Nenets Autonomous Okrug third production-sharing project to come under government pressure after Sakhalin I and II

Sarah Hurst

For Petroleum News

International oil companies in Russia were dealt the latest in a long series of blows in early September with the announcement that the country’s Energy Ministry has approved the sale of a 20-percent stake in the Kharyaga oil field to state-owned Zarubezhneft. Kharyaga is located in the Nenets Autonomous Okrug and has estimated reserves of 55 million metric tons (376.3 million barrels). It is one of three projects in Russia run on the basis of a Production Sharing Agreement, with France’s Total holding a 50-percent stake, Norway’s StatoilHydro 40 percent and the Nenets Oil Co. 10 percent.

Total has been under pressure from the Russian government over its stake in Kharyaga for several years. In 2005 Russia’s environmental watchdog initiated license revocation discussions after alleging that Total had failed to follow field development recommendations. The Energy Ministry has now given Zarubezhneft the green light to initiate talks with Total, and the Russian company will have to decide what it will pay for the 20 percent. Russian newspaper Kommersant quotes an analyst as estimating the value of the stake at around $300 million.

The 29-year production-sharing contract for Kharyaga was signed in 1995 and came into effect in January 1999, according to Total’s Web site. In October of that year the wells worked over by Total began production and output tripled to more than 7,800 bpd. Phase 2 was launched in 2000 and completed in 2003 with the startup of new installations.

“The extremely hostile conditions include an icy landscape, just five hours of daylight in winter, and temperatures that plunge below minus 30 degrees C,” Total said. “Fast reflexes are a necessity in remote Kharyaga, and with 16 nationalities taking part in the project, flexibility is also critical. Although the technology is not particularly remarkable, the climate is taxing, as the constant cold saps energy and slows things down, while the lack of sunlight eventually makes people more tired and irritable. Today, Kharyaga is the focus of our exploration and production operations in Russia.”