Russia approves 2007 Kharyaga cost rise for Total to $164 mln

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Russian authorities Thursday approved a raise in the 2007 cost estimate for Kharyaga oil field being developed by French oil major Total SA by 12% to $164 million, the Industry and Energy Ministry said.

The approval marks the latest success for Total, which was named earlier in the day as the chosen partner of state-controlled natural gas giant Gazprom to develop the huge Arctic Shtokman project in the Barents Sea. A joint committee of the Finance, Industry and Energy, and Natural Resource Ministries, as well as the administration of the Nenets Autonomous Area where the oil field is located, authorized additional spending on roads, drilling design, and preparation of facilities, following a request from the project operator, Total's Russian arm. “This is a landmark decision for the project, as it opens up prospects for deeper field development and new investment,” said Vladimir Salamatov, who is responsible for industry policy at the Industry and Energy Ministry.

The committee pledged to come up with a consistent field development policy by the end of the month, and will then hand over all field operations to the holders of the production sharing agreement (PSA). Kharyaga's reserves, estimated at 160.4 million metric tons (1.2 billion bbl) of oil, have been developed under a 29-year PSA since 1999 (the document was signed in 1995)

Total owns 50% in the project; Norsk Hydro owns 40%, and the Nenets Oil Company, controlled by the regional government, owns the remaining 10%. Cost overruns on PSA agreements, which date back to the 1990s, have been a major issue between Russian regulators and Western operators since the past year. Under the deals, operators are not obliged to share their profits with the state until their expenses are recouped.

Royal Dutch Shell, before reluctantly selling control of its Sakhalin-2 oil and gas project in Russia's Far East to Gazprom, had tried to include an additional $10 billion in the cost sheet on an originally $12-billion project, thus delaying profits for the Russian government. Similar disputes also overshadowed cooperation on the neighboring Sakhalin-1 project between state controlled oil company Rosneft and operator ExxonMobil. (rian.ru)

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