largest petroleum companies in the United States and Europe want
to invest tens of billions of dollars in Russia's oil industry.
have any choice?
events in Russia have rattled some Western oil investors, who are
watching for major new developments.
not have long to wait.
for the Russian industry could change, dramatically, after the elections
companies would want to reduce their exposure to Saudi Arabia and
that whole area in the Middle East," said William Ratliff of the
Hoover Institution at Stanford University. "Russia is one of the
most obvious places to go, and there aren't many obvious places."
wrote a 2003 white paper issued by the institution, "Russia's Oil
in America's Future — Policy, Pipelines and Prospects." In it,
he examines the problems and possibilities of Russian oil development,
especially as it will affect the United States.
Russia as a magnet for industry investment, despite the problems.
really have good options," he said. "Russia is probably the best
oil reserves of 60 billion barrels, Russia can't be ignored by the
Western oil industry.
political, legal and business environments remain unpredictable.
came home hard with the October 2003 arrest of Mikhail Khodorkovsky,
chairman of Russian oil giant OAO Yukos and purportedly Russia's
move took the Western industry by surprise. Business reaction was
quick and negative, even though Russian President Vladimir Putin
tried to reassure markets and potential investors.
resigned from Yukos and Putin downplayed the importance of the arrest,
calling it a law-enforcement action, not a political one.
about the future independence of Russia's oil companies, however.
is no consensus among Western investors on how to proceed efficiently
in the rapidly evolving new environment in the Russian energy industry,"
said Sergey Kuznetsov, a Moscow native serving as international
relations representative for ChevronTexaco Corp. in San Ramon, Calif.
them are wise not to over-dramatize the recent events, and just
need more time to sort things out," he said. "But how much time
do they have for hard thinking? Not too much, since 32 percent of
the world's gas reserves is not something to be kept on the back
burner for a long time. Competition will continue to grow, and new
energy players from China, India, Japan and even Saudi Arabia may
soon challenge super majors on the Russian territory.
government will not be threatened by lack of partner choice."
visited with U.S. State Department officials after the arrest of
Khodorkovsky and said, "I felt they were concerned, but they were
also very pragmatic."
companies appear less worried about the overall political and economic
situation in Russia, Kuznetsov noted, giving Moscow additional leverage
in dealings with the Americans.
ExxonMobil hold multi-billion-dollar interests in projects on and
offshore of Sakhalin Island, off the far eastern Russian coast.
BP also has a significant exposure to the Russian oil industry,
in the $7 billion range.
in 2003, BP became 50 percent owner of the newly formed Russian
oil company TNK, which combined Russian petroleum assets of BP,
Tyumen Oil Co. and OAO Sidanko.
to settle a long-simmering dispute between BP and some Tyumen Oil
shareholders, involving a tug-of-war over Sidanko production.
followed by a much larger merger. In September, Yukos announced
it had finalized an agreement to merge with Sibneft, forming the
world's fourth-largest oil company.
showed an interest in acquiring part of the merged Yukos-Sibneft
entity, Russian leaders may have balked, according to Ratliff.
just had a major foreign investment. Some Russians were concerned
that foreigners are going to control their oil industry," he said.
Khodorkovsky is one of a small number of super-wealthy Russian industry
owners called "the oligarchs." In Russia, the oligarchs are wildly
unpopular and widely distrusted. Russians see their industries as
"owned by rich guys who don't have the national interest in mind,"
of Russians think this is a problem — that it's a purchase of a
major part of their companies by foreign investors," he said. "Russians
have a very nationalistic streak."
arrest led to speculation that Putin was removing a potential political
rival. Ratliff and other observers of Russian politics dismissed
are not going to vote for oligarchs," he said. "Khodorkovsky is
not going to win an election. He's not a political threat. He is
potentially an economic threat."
November, Sibneft announced that it would walk away from the merger
with Yukos, further complicating the picture in Russia's oil industry.
oil companies do have other options for investment, and more options
may open up soon, according to AAPG member Nahum Schneidermann,
ChevronTexaco's manager-international technical relations.
extent, U.S. companies are disadvantaged by our government policies,
opens up and develops an internationally accepted government and
petroleum laws that are enforced, and it becomes more stable, the
international industry will be there," Schneidermann said. "I'm
sure, when activities in Libya and Iran will be allowed by the U.S.
government, the U.S.-based companies will be there as well. Everyone
of higher prices for crude oil on world markets, Russia now depends
less on foreign investment, he noted.
income from crude exports, access to Western-style management and
company governance models allow Russian companies to "buy Western
technology and reservoir management," Schneidermann said.
need for capital investment won't go away, according to Ratliff.
have the pipelines they need. They don't have the sophisticated
support they need for the Siberian fields. They need an awful lot
of help," he said.
views investment in Russia as both an opportunity and a gamble.
companies are forced to diversify their investments because they
can't foresee the future. As long as the Russian bet is on the table,
they almost have to take it.
company wants to be left out as those shares and those fields are
gobbled up and the more daring companies may prove to be the winners.
Or the losers.
will not last forever, even if he holds power beyond the legal second
term," Ratliff said. "Potential investors had better be prepared
for surprises and forced compromises if they put big money into
they don't put anything in," he added, "they may be the big losers."
said Western investment currently aims toward buying shares of existing
Russian oil companies with production.
like everyone is talking to everyone else, both in Russia and worldwide,"
he said. "One can really enjoy discussion of exotic offshore fields
in the Arctic or setting up new oil centers in Sakha, but investors
are interested in more realistic projects.
energy sector always has been a very complex thing, tightly wrapped
into enigma," he added. "Our experience with construction of a $2.6
billion CPC pipeline in Russia proves that Big Business is always
involved with Big Politics."
investors in Russian oil include Saudi Arabia, according to Ratliff.
In September, Saudi Crown Prince Abdullah Al-Saud visited Moscow
to confer with Putin.
one question is whether Putin has struck a deal or is going to strike
a deal with Saudi Arabia, in which case the U.S. money becomes almost
irrelevant," Ratliff said.
Saudis promised $100 billion or anything like it, then Russian oil
is much less reliant on other foreign investment."
"very rambunctious and rapidly growing oil companies" may be a challenge
for Russian leadership in making investment deals with other countries,
probably thought when he talked to the Saudi prince was, 'I don't
have control of the Russian oil industry,'" Ratliff said.
Yukos an example, Putin may cause them enough trouble that the others
(in the oil industry) will become much more compliant."
Yukos has dominated headlines recently, the company's real role
in the mature, ambitious and diverse Russian energy industry should
be viewed objectively, Kuznetsov observed.
much more complicated than Yukos," he said, "since the Russian oil
portrait has a life of its own."
second-largest oil producer, OAO Lukoil Holdings, has denied rumors
that it plans to sell 10-15 percent of its operations to ConocoPhillips.
in November Lukoil said it wants to finalize a joint venture agreement
with ConocoPhillips. The venture would develop Lukoil's Northern
originally hoped to secure a production sharing agreement (PSA)
for the $2 billion venture. But Russia has backed away from offering
PSAs, which allow up-front recovery of costs.
ConocoPhillips has invested more that $200 million in the Northern
picture also includes the long-expected restructuring of the world's
gas giant Gazprom, social policy in energy industry, access to global
markets, diversification of export routes, new private pipelines
and pipeline access, integration into international energy space,
application of European environmental standards, forming an efficient
fuel and energy balance, efficiency of subsoil stock, etc., and,
finally, sources of $500 billion investments required by the Russian
energy industry over the next decade.
senses a change in the wind.
of the message coming from Moscow is that regions will lose much
of their power to license fields," he said.
investors should watch the progress of pending bills in Russia's
parliament, the Duma, Kuznetsov said. That's where the licensing
issues will be decided.
we should see how they regulate subsoil resources and treat companies
in terms of profits," he said.
for the Duma were held in December, and Russia's presidential election
occurs in March. At this point, Putin appears almost certain to
of the elections will have a profound long-term effect on Russia's
business climate and its energy industry, Kuznetsov said.
the March 2004 presidential election investors may find themselves
in a vibrant and, hopefully, more transparent, predictable and investor-friendly
environment," he said. "I believe some federal energy officials
will go and the 2020 Energy Strategy will finally enter its implementation
stage. The question is, how knowledgeable and professional will
be those who succeed outgoing bureaucrats?"
best case, experienced petroleum professionals will be appointed,
Kuznetsov said. But it's not at all certain that will happen.
investment in Russia's oil industry a good idea?
he would invest his own money in Russian oil, Ratliff answered:
invest a little. I wouldn't put all my money in Russian oil, but
I'd buy a little," he said.
Is it a
good idea to invest in Russia?
the situation in Russia is so fluid, so unpredictable, that no one
can know the answer for certain.
the largest Western petroleum companies that want to invest tens
of billions of dollars.
going to have to have a lot of faith in God and Putin not to require
some sort of controls," Ratliff said.
type of controls they will want are the type that will antagonize