Russian President Boris Yeltsin's recent decree giving the domestic joint stock company Rosshelf all rights to develop supergiant Shtokmanovskoye gas/condensate field in the Barents Sea is viewed by Moscow's reformist press as appeasement of his conservative critics and of the nation's still powerful military/industrial complex.
The decision, made late last month, favoring Rosshelf (Russian Company for Shelf Development) was made at the expense of competitor Arkticheskaya Zvezda (Arctic Star), a group that includes Conoco Inc., Norsk Hydro AS, Neste Oy, and Metra.
Rosshelf was founded this year by 19 large enterprises in Russia's military/industrial complex (OGJ, Dec. 7, p. 31). It has no experience in oil and gas exploration or development.
Meantime, Conoco expressed surprise and disappointment at the Russian government's decision. Conoco said naming Rosshelf to head development of the field raises doubts about how Conoco and other Russian and western entities will be involved.
"All along, we have expected development of Shtokmanovskoye would be handled by a partnership of Russia and western countries," a Conoco official said. "Having a Russian entity responsible for Shtokmanovskoye development doesn't mean we can't have an interest."
IZVESTIA: DECISION UNJUSTIFIED
Moscow's Izvestia newspaper said Yeltsin's decree on Shtokmanovskoye must be regarded as "the government's reaction to ever more persistent demands made by Russia's military/industrial interests and a rejection of pro-western enticements."
it added that based on purely economic considerations, selection of the Rosshelf proposal over that of Arctic Star wasn't justified in the opinion of many officials.
"The Shtokmanovskoye development project can't, of course, be entirely financed by the Russian treasury," Izvestia emphasized. "Therefore, its fate will in significant degree depend on the terms under which Rosshelf can obtain western credits.
"This and other factors can in due time make Rosshelf's initial victory largely conditional."
TOO SOON TO TELL?
Izvestia noted that even Rosshelf's management believes it is too early for the western group "to pack its bags" because of it loss in the battle waged in government offices.
It said, "Arctic Star can still be drawn into the Shtokmanovskoye project, although the specific form of its participation has not yet been determined.
"This possibility is all the more important since a number of experts believe that when Norway's big offshore Troll field goes on production in 1995, European countries won't need additional gas supplies for a long time. Rosshelf can succeed in penetrating the world market only by cooperation with western firms."
Rosshelf Pres. Yevgeny Velikhov-also vice-president of Russia's Academy of Sciences-told an Izvestia reporter that his company's project for Shtokmanovskoye is an example of real progress in Moscow's effort to get big nonmilitary orders for a large number of defense plants. He said a special role in the Barents Sea project will be assigned to the Severnoye Machine Building Enterprise, which builds nuclear powered submarines at Severodvinsk, near Arkhangelsk on the White Sea.
IZVESTIA CRITICISM
Izvestia wasn't impressed by Velikhov's statement. It observed that to date Russia's conversion of military plants to civilian work consists of a long list of failures.
"It is difficult to assume that these good intentions will work out in practice.
"There were hopes that for the first time in the post-perestroika period the Russian military/industrial complex would engage in something it wasn't accustomed to-independent commercial activity. But it turns out that it is depending on large government orders, as was the case in the good old days."
Izvestia said Rosshelf's proposal for Shtokmanovskoye development would realistically require investment of $12-15 billion, not $5 billion as the firm's proposal stated.
"There are always cost overruns in Russia," Izvestia explained. "The initial estimate has never turned out to be the final cost."
The newspaper disclosed that the 3 trillion cu m (106 tcf) of gas attributed to Shtokmanovskoye represents original gas in place, not producible reserves. Other Russian sources believe the Barents Sea field will yield 1.25 trillion cu m (44 tcf) of gas and 190 million metric tons (1.39 billion bbl) of condensate in its lifetime.
CONOCO'S UNCERTAINTY
Some uncertainty stems from Conoco's longstanding involvement in Russia and the former Soviet Union. The group of Russian industrial and military enterprises making up Rosshelf includes Arkangelskgeologia, Conoco's partner in Polar Lights joint venture, currently working on development of Ardalin complex fields in Timan-Pechora basin (OGJ, Oct 19, p. 25). Also, Conoco officials are well acquainted with officials of other Rosshelf members, such as Russian state gas concern, Gazprom.
In addition, for the past 3 years, Conoco and Norsk Hydro AS have been leading a group of Western and Russian companies evaluating Shtokmanovskoye field under an interim agreement with the Russian government. That agreement still is valid, and Conoco still expects to present the feasibility study by yearend.
"Our objective now is to learn more about Yeltsin's intent and how it affects our activities," Conoco said. "We believe there will be opportunities for further discussions about developing Shtokmanovskoye."
RESOLVING CONFUSION
Conoco said circumstances indicate confusion surrounding Shtokmanovskoye development could begin clearing in early 1993.
For one thing, completion of the feasibility study and selection of a Russian group to head Shtokmanovskoye development could be viewed as complementary, logical steps in a long, complicated planning process.
Several industry officials said Gazprom's participation in Rosshelf at least creates the appearance of a conflict of interest between the state gas concern's equity interest in Shtokmanovskoye and its role as coordinator of Russian gas exploration, development, production, and transportation.
Conoco remains interested in playing a major role in Shtokmanovskoye development. But to take part, the company contends it must have an invitation to participate, its role must be well defined, and economics of the project must be favorable.
"We don't see this as closing the door on the possibility of Rosshelf talking to other companies about participating," Conoco said. "But some foreign companies trying to set up deals in Russia will look at this decision and wonder about how they're proceeding."
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
