MODEL RUSSIAN REPUBLIC OIL LAW TAKING SHAPE

The Russian republic and the University of Houston are making progress in drawing up model petroleum legislation for use in Russia as it seeks to attract foreign operators.

Part of a draft underground resources code to be proposed in December in the republic's Supreme Soviet, it will be the basis for rewriting Russia's oil and gas law.

Twelve Russian delegates arrived in Houston Oct. 27 for a 5 day session with U.S. legal specialists assisting in the drafting process.

Work is proceeding in Russia and the U.S. under a protocol signed Sept. 11 by Russian Vice Prime Minister Igor Gavrilov and George W. Hardy III, director of the Russian petroleum legislation project in the University of Houston's Law Center Foundation.

Meantime, a subsidiary of Pride Petroleum Service Inc., Houston, is winterizing service rigs and equipment for a workover project in the Russian republic. It will work under a letter of intent with Quintana Trading Inc., a unit of Quintana Petroleum Corp., also of Houston (OGJ, Oct. 28, p. 32).

MODEL PETROLEUM LAW

Hardy said the project is the first to include the entire range of legal considerations important to attract foreign investment in oil and gas projects.

"If we turn out a good product, there's a good chance it will become a model for the other Soviet republics," he said.

Directors of the U.S. drafting process have formed working groups headed by coreporters representing academic and petroleum industry viewpoints. Leaders of the Russian drafting process have agreed to organize along the same lines.

University of Houston officials have raised about half the $1.5 million needed to finance the project from major international energy companies with stakes in the outcome. For their support, project sponsors will receive full progress reports at the earliest possible times, Hardy said.

Officials expect the draft oil and gas law to redefine contractual relationships covering joint ventures, concessions, licenses, and other exploration and production agreements between the Russian republic and foreign companies.

Among other topics, the draft legislation will cover oil and gas conservation, environmental protection, taxes and economic rules, oil and gas pipeline regulation, and technology transfer.

TIMETABLE, ISSUES

U.S. and Russian working groups have been identifying key issues on which policies must be set as bases for the model legislation.

A group of law center officials led by Hardy returned to Moscow early in October to join teams of Russian specialists working on the draft. The delegation of Russians that arrived in Houston last week was to finish position papers on the key issues.

Hardy said U.S. and Russian teams will return to Moscow early this month to begin jointly drafting the underground resources code and oil and gas legislation. Before the resource development package is proposed in Russia's Supreme Soviet, several Russian specialists will return to Houston to fine tune the legislation and begin working on regulations needed to carry out the proposed laws.

Hardy said Russian leaders in the project have shown concern about:

How to allow oil and gas prices to reach international levels and the domestic economic and social consequences of doing so.
Whether to form a state oil company based on Norwegian or Mexican models or privatize oil and gas operations, retain mineral ownership, and lease exploration and development rights to private entities.
How to privatize the oil and gas industry without allowing existing state monopolies to become private monopolies.
How to assure free trade and competition among the republic's provinces.

Hardy said V.M. Lopukhin, named the Russian republic's deputy minister of economics early in September, is leading the Russian drafting effort. Vasiliy A. Fedortchenko, chairman of the Russian Supreme Soviet committee of industry and energy, has expressed his support for the plan.

"The Russians are under extreme political and economic pressures to produce," Hardy said. "If they don't, it seems likely there will be another change of government."

WORKOVER PROGRAM

The final form of Pride's agreement will depend on Quintana's completing financial arrangements and securing other assurances from its Russian client, Pride said.

Pride Pres. Ray H. Tolson said the first two rigs-300 hp, double derrick units with service capability to 12,000 ft-will be shipped by freighter to St. Petersburg (formerly Leningrad) and by rail to a base at Kogolym, between the Ob River and Gulf of Ob on the western Siberian plain.

Tolson said Quintana has indicated a large number of wells are not producing in the area because of a wide range of problems, including damaged casing, faulty cement jobs, and other mechanical problems.

At first, American-Canadian crews will man Pride's service rigs 24 hr/day, rotating in and out of country on a 28 day cycle. The company intends to begin training Russian workers immediately to replace Pride crewmen. The pace with which Pride replaces its crewmen with Russian workers "will depend on what we find there," Tolson said.

"We've been told some very good Russian crews are available. Eventually, we expect to phase out most of our own people, except for toolpushers and other supervisory personnel."

Tolson said eight to 10 Pride service rigs could be needed if Quintana's project is expanded.

Tolson said Pride has been contacted by several other companies about providing well service crews and equipment for other workover projects in the Russian republic.