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MarketWatch: Gazprom inclusion may ease sakhalin-2 regulatory pressure

YUZHNO-SAKHALINSK, RUSSIA (MarketWatch) — The entry of Russian gas giant OAO Gazprom (GSPBEX.RS) into Sakhalin-II will likely result in the alleviation of regulatory pressure on the project’s operator, Sakhalin Energy Ltd., a member of Russia’s chamber of commerce, told a conference on Sakhalin Island Wednesday.

“We must introduce Russian participation, of course that means Gazprom,” said Zalery Garipoz, head of the chamber’s oil industry development committee.
Once Gazprom enters the project, “there will be no more criticism of Sakhalin Energy, there will be only ‘hoorah’,” he said.

Sakhalin-II, an offshore oil and natural gas development project in the northeastern area of Russia’s Sakhalin island, is operated by international consortium Sakhalin Energy, in which Royal Dutch Shell PLC (RDSA) has a 55% stake. A Mitsui & Co. (8031.TO) unit holds a 25% stake, and Diamond Gas Sakhalin, a Mitsubishi Corp. (8058.TO) unit, holds a 20% stake in the consortium.

Both Sakhalin-1 and Sakhalin-2 projects are being developed by Western oil companies under production-sharing agreements signed during the 1990s, when oil prices were lower and when Russia was in greater need of foreign capital to develop its energy reserves. A third agreement was granted to Total SA, of France, to develop the Kharyaga oil field in the Nenets region, north of the Arctic Circle.

Under the deals, the oil companies win tax breaks, while the government gets a share of the oil and gas once the project’s production costs have been covered.

As prices have surged in recent years, Russia, like many other oil-producing countries, has shifted its approach to give precedence to local companies — primarily state-controlled giants OAO Gazprom and OAO Rosneft — relegating foreign companies to junior-partner roles.

-Edited by Jay Alabaster
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