In early 2009, the Russian Ministry of Energy made a proposal to the government to include only the non-recovered oil at unexplored sites into the state reserve.

The Minister of Natural Resources of the Russian Federation expressed opposition to the plans for forming a state oil reserve comprised of unexplored hydrocarbon fields. Minister Trutnev indicated that it would be of greater advantage for the government to distribute oil and gas fields to companies as demand for fuel rises. The implementation of this new method of allocating unexplored fields could pave the way for conducting tenders for the two strategic oilfields in the Nenets autonomous okrug as early as 2010.

At the same time, the Russian Minister spoke in favor of creating a state-owned geological corporation that would combine a number of Russia’s smaller companies engaged in surveying, exploring, and developing geological sites. Preliminary assessments of the results of 2009 illustrate that geological exploration in Russia decreased by nearly 10 percent compared to the previous year. The decline is attributed to the falling interest of foreign investors towards Russia’s unexplored reserves. At the same time, Russian energy companies would like to keep their investment in exploration at the same level.

The Russian Minister of Natural Resources also indicated that the country’s largest independent petroleum corporation Lukoil will not forfeit its license to the Centralnaya field, even though it was reported earlier that Russian Federal Subsurface Resources Agency (Rosnedra) officials suggested the company had not complied with the requirements of several federal regulatory agencies for obtaining a permit for exploring a strategic field.

Strategic reserves

Addressing journalists in December 2009, Mr. Trutnev said that the Ministry of Natural Resources is most cautiously reevaluating the plans for organizing a state reserve of unexplored hydrocarbon formations. It takes a long time to bring a field into production. Five to seven years of work are required to complete surveying, exploration, and drilling after the permission for the use of a field is granted. The Minister is of the opinion that putting off the decision to allow exploration until later and refusing to accept responsibility for what happens between the granting of a license and the launch of production is not in Russia’s best interest. Since long-term forecasts as to what may happen 10 to 15 years in the future are often unreliable, it makes little sense to postpone field development for an indefinite period of time.

The Minister stated that he believes that the Russian government should present all available fields and deposits for exploration on the basis of actual demand. Artificially limiting demand by constraining exploration is not a feasible strategy for the economy. The Minister is convinced that Russia needs to hold auctions and tenders, develop new equipment manufacturing facilities, and create new jobs.

In accordance with the federal reserve program, fields containing 30 million tons of oil should be kept as Russia’s strategic emergency supply of oil and not released for immediate exploration. The decision to launch production can be made only by the government. 

Fields of Titov and Trebs

The licenses for the Titov and Trebs formations holding vast hydrocarbon reserves should be put up for auction in 2010, according to Minister Trutnev. The Minister will personally see to it that the proposal for initiating the tenders on the two fields will be presented to the Russian government. The final authority to make fields available for exploration rests entirely with the government.    

Tenders should be organized only for the largest oil and gas fields because they are the ones that would provide the quickest returns to offset expenses associated with infrastructure construction. The Ministry of Natural Resources made proposals to host the complicated investment tenders.  

Mr. Trutnev expressed hope that at least one of the two fields will be sold in the first half of the new year.

The huge Roman Trebs field with an estimated 78.12 million tons of hydrocarbon reserves and the Anatoliy Titov field containing 132.8 million tons of oil are located in the Nenets autonomous okrug in Arkhangel’sk region and have been singled out as “strategic.”

In accordance with the recent amendments to the Law on Mineral Deposits, a strategic field is defined as a deposit of hydrocarbon reserves either located on the continental shelf or estimated to contain over 70 million tons of oil or 50 billion cubic meters of gas. The Russian government is the ultimate decision maker as to who gets to develop a strategic field. Similar definitions also are applicable to deposits of beryllium, cobalt, diamonds, high-purity quartz, lithium, nickel, niobium, platinum, tantalum, uranium, yttrium metals, as well as vein gold with reserves of more than 50 metric tons and copper deposits with reserves of over 500 000 tons. Any deposits located in secure military zones are also deemed strategic.

Gold deposits

The Ministry of Natural Resources is also preparing project drafts to conduct an investment tender for the Sukhoi Log gold deposit.

The Sukhoi Log gold field, located in Irkutsk region is thought to be one of the largest in Russia. Rosnedra included the gold field on the licensing list for deposits that will be conveyed to producers during 2010. The head of Rosnedra Anatoliy Ledovskih announced this decision at the end of October 2009. 

The reserves of Sukkhoi Log have been estimated at 2 000 metric tons of gold. Future exploration may reveal additional reserves of up to 2 600 to 2 700 tons. The cost for constructing the mine is around RUR 49 billion. Annual production forecasts are from 50 to 60 tons of gold. The reserves are expected to last from 30 to 40 years. Existing feasibility studies suggest that investments can be recouped in 12 years.     

Geological corporation

The government of the Russian Federation intends to create a state-owned geological corporation on the basis of the existing company OJSC Centergeology. The new consortium would integrate Russia’s largest geological companies.

Russia will create a state Russian Geology corporation from OJSC Centergeology, which is consolidating many of the country’s geological enterprises, Trutnev said.

The company is expected to be set up at the start of 2010. The holding company OJC Russian Geology is going to unite 34 other companies and 21 federal unitary enterprises. The new enterprise will be owned by the government and designated as a company of strategic importance. In accordance with the information made available previously, the corporation was to be set up within a two-year timeframe.  

Exploration

The decrease in the level of geological exploration reached 10 percent in 2009. The contraction was manifested not only by the decrease of prospecting work, but also by the decline in the replenishment of reserves. 

Still, the decrease was not as high as originally projected at the start of 2009.

The financing of geological exploration by developers is estimated to have decreased by 10 percent as well.

Companies have struggled to keep the level of investment at the mark where it had been before. At the time of the crisis, the volume of financing for exploration was not greatly affected. Russia’s energy corporations realize that investing in exploration is indispensable for ensuring the stability of the oil and gas sector in the future.

Interest of foreign investment

The interest of foreigners towards working in Russia declined sharply in the current year, Mr. Trutnev remarked to reporters. “Foreigners are now less aggressive on the market than they were two years ago,” commented the Russian minister.

Many companies have found it increasingly difficult to deal with banks during the economic downturn. Access to cash is problematic.

Decisions with respect to the allocation of subsurafce resources have been made with Russia’s national interests in mind. While the Minister declined to voice criticism with respect to these decisions, he noted that the economic situation has changed since the adoption of the allocation program.

Centralnaya section

Lukoil is not confronted with the prospect of losing its license for the Centralnaya formation.

The minister indicated that there is no risk for the company. The company has an agreement with Kazakhstan, and attorneys indicated that the intergovernmental contract supersedes conflicting legislation.       

Minister Trutnev indicated that the necessary procedures for approving the decision on the issue of granting the Centralnaya license have already been devised.

Lukoil’s license for exploring the oilfield lapsed at the end of October 2009. The license belongs to CenterCaspNeftegaz, a joint enterprise of Lukoil and Gazprom.

Before the Minister’s announcement, it was believed that the decision to extend the license may be reached in the first few months of 2010.

Rosnedra previously issued statements that Lukoil needed to obtain specific clearances from several federal authorities and the Federal Antimonopoly Service to be able to renew the license. Regulators were worried that the situation would be exacerbated as a result of the lack of transparency of Lukoil’s shareholder structure.

In accordance with the state law on deposits and exploration, strategic offshore fields can be developed only by state companies that have been engaged in shelf exploration for a period of five years. Additionally, the company must be entirely based and organized in Russia.

The Centralnaya section is situated in the Russian part of the Caspian Sea, around 150 km to the east of the city of Makhachkala. In May of 2008, CenterCaspNeftegaz explorers estimated that the gas condensate deposits at Centralnaya contains more than 169 million tons of oil equivalent.