The $6.75 billion deal that BP PLC announced Feb. 10 to join its Russian interests with that of the Alfa Group and Access-Renova (AAR) "proves" that production-sharing agreements (PSAs) are not necessary to encourage foreign investment in that country, said Mikhail B. Khodorkovsky, chairman and CEO of OAO Yukos.
BP signed an agreement in principle to combine its Russian interests with that of the AAR group to create the third largest oil and gas operation in Russia, with each of the two main entities holding a 50% stake. The new company will incorporate Tyumen Oil Co. and Sidanco Oil Co., each among the 10 largest oil and gas producers in Russia (see related story, this page).
Significance of BP deal
"BP's announcement shows that large international oil companies are willing to work in Russia under the present situation," said Khodorkovsky Feb. 11 at the opening plenary session of Cambridge Energy Research Associates's annual week-long energy conference in Houston. He called it "a symbolic signal" that major international oil companies are willing to invest in Russia "under the present (tax) system."
Speaking through an interpreter, Khodorkovsky said Russia's lack of PSAs is not "a major bottleneck" to outside investment, as many western oil and gas companies claim. "Development (of Russia's oil and gas resources) has not been held back by the lack of PSAs," said Khodorkovsky, although he acknowledged other "political factors" have at times increased investment risks. He later said, "The experience of recent Russian history shows we will overcome all political obstructions."
Khodorkovsky repeated Russian government claims that PSAs reduce tax receipts from oil and gas projects, "especially in the first 9 years," without increasing total production. Even over the 20-year life of a project, government tax receipts are lower under proposed PSAs than under "the present system," he said.
"It would be nice if all companies could pay lower taxes," said Khodorkovsky. "But the government is not going to go for that."
Russian officials should honor the PSAs already in place, he said. But "all companies" should be allowed to participate in bidding for projects under consideration for future PSAs, Khodorkovsky said.
Pipeline probabilities, US supply
On other issues, Khodorkovsky predicted a "75% probability" that Russia will build two major oil pipelines by 2007, one to Murmansk on Russia's northern coast and the other to China.
The pipeline to Murmansk, the only ice-free port in northern Russia capable of serving supertankers year-round, offers an "advantage" in that oil could be "easily transported to any European port and to several ports in the US and Canada," said Khodorkovsky. Under such a system, he said, Russian oil could be transported to St. John's, Newf., at a lower cost than could oil supplies from the Middle East.
A proposed oil pipeline to China, to be built in 2005, would be "important" to the development of otherwise marginal oil fields in Siberia, he said.
Khodorkovsky sees a growing market for Russian oil in the US. Last year, Yukos initiated a pilot program of transporting "five or six" spot cargoes of Russian oil to the US, primarily through Houston, to test the financial feasibility of direct sales to US refiners (OGJ Online, July 8, 2002).
Since the US government has a stated objective not to depend on any one foreign supplier for more than 15-20% of its oil imports, Khodorkovsky said, Russia eventually might supply 2 million b/d of oil to the US.
