First Progress Seen For Russian PSA Legislation

July 14, 1997

First evidence that Russia is making progress with passage of production- sharing agreement (PSA) legislation appears with news of approval of seven field developments by the lower house of parliament, or Duma. The lower house has apparently approved five oil and two gas field onshore developments and drawn up a second list of projects for consideration.

The lower house has apparently approved five oil and two gas field onshore developments and drawn up a second list of projects for consideration.

Two of the oil fields given approval are operated by the Evikhon joint venture in western Siberia, in which Dana Petroleum plc, Dublin, has a 10% interest. Dana said Duma approvals include Evikhon's Kamennoye and Palyanskoye fields, with estimated reserves of 1 billion bbl and 526 million bbl of oil, respectively.

Tom Cross, Dana chief executive, said, "The approval of this first group of fields represents a watershed for the Russian oil industry. The Duma vote of more than two to one in favor is a clear indication that the Russian government is backing high-quality Russian groups to begin development of large onshore fields, through PSAs, working closely with foreign partners."

While some small producing joint ventures have progressed, Russia's lack of PSA legislation has blocked investment by foreign majors in a number of huge field developments. These include giant projects off Sakhalin Island led by Exxon Corp. and Marathon Oil Co. (OGJ, Oct. 30, 1995, p. 12).

While Dana's news suggests a big step has been taken in satisfying the needs of foreign majors for PSA laws ahead of major spending, the situation regarding the status of legislation is unclear.

Graham Stewart, head of business planning at Dana, told OGJ that President Yeltsin and the Russian parliament's upper house still need to approve the development plans. Stewart added that a group of Dana officials will leave for Russia next week to find out exactly what the situation is: "We're not entirely clear, and we want to get to the bottom of what it means to us."

The second batch of development plans to be brought before the Duma for approval are thought to include the Salym group of fields in western Siberia. These are to be developed by Evikhon and Royal Dutch/Shell Group and have estimated reserves of 700 million-1 billion bbl of oil.