There is growing evidence that the key to a successful joint venture or production-sharing agreement in Russia may lie not in Moscow but with committed and progressive-thinking regional leaders.
The successful implementation of the Sakhalin II PSA, promoted by Sakhalin Gov. Igor Farkhutdinov, shows how a succession of regional administrators can produce positive results.
According to Dave Golder, vice-president of international production for Marathon Oil Co., and former executive vice-president, upstream, with Sakhalin Energy, the governor pragmatically adopted the PSA concept as an economic engine for reversing the Sakhalinskaya Oblast's declining economy, "while creating jobs and revenues for decades to come."
Essentially, "He has been an effective promoter of former Gov. Valentin Fyodorov's theories on PSA applications for oil and gas development offshore Sakhalin but, more importantly, has had the political and tactical skills to turn theory into reality.
"Fyodorov was a relatively nonpolitical economist and academic at the Plekhanov Institute of Economics in Moscow, who believed passionately that PSAs could attract Western funding and technology to unlock Russia's natural resources while stimulating the Russian economy."
Thus, Fyodorov persuaded Boris Yeltsin to appoint him governor of the Sakhalinskaya Oblast so that he could prove his theories. "And with the strong assistance of Deputy Minister of Fuel and Energy Dvurechensky, who provided the political knowledge and 'muscle' to push the PSAs through the bureaucracy in Moscow, he was able to initiate the Sakhalin I and II PSA process," Golder said.
The next governor, Krasnoyarov, kept enthusiasm for the PSA concept alive while the necessary legislation was enacted. Golder said Farkhutdinov then shepherded the necessary tax and other legislation through the oblast's Duma to meet the oblast's obligations under the terms of the Sakhalin I and II PSAs.
"He has lobbied hard and effectively in Moscow to get the necessary Enabling Law and Normative Acts through the State Duma and the Federation Council, of which he is an ex officio member as governor," he said.
His administration has also promoted JVs between Russian Far East enterprises and Western companies, which has helped the PSA operators to meet their Russian equipment and labor content obligations.
The Sakhalin II PSA, which has been "grandfathered," "allows us enough certainty to go forward, whereas subsequent PSAs had to overcome legislative problems with the Duma and the Yelstin administration," Golder explained. "We are not totally happy with all the legislative and tax issues, but under our PSA, we have a cap on taxation, so it is fixed." Thus, Sakhalin Energy is not obligated to pay VAT and certain other federal taxes, or to pay more than a fixed total tax burden of combined federal and oblast taxes.
Current operations are awaiting the spring break-up of ice in Astokhskoye field, after which production is expected to resume in June.
Sakhalin Energy expects to resume production at 70,000 bo/d, reaching 90,000 bo/d by August (OGJ, July 19, 1999, p. 44).
So far, the Molikpaq, a modified arctic-class drilling and production platform, has drilled seven wells and completed six, and will reach TD with the eighth soon. A total of 14 wells is projected to be drilled by the end of 2000. A waterflood project is also pending approval, under which Sakhalin Energy expects to commence water injection in early 2002.
Golder said the company is also drilling a couple of appraisal wells in the Piltun portion of the Piltun-Astokhskoye complex with the Sakhalinskaya jack up. "One well will be a deep test that will take a look at the Daekhuriinsky formation. This will fulfill one of our PSA obligations," he said.