Government Places More Than 30 Oil and Gas Fields on Russia's "Strategic" List

The List—At Least In Part

The Russian Natural Resources Ministry revealed yesterday that Prime Minister Viktor Zubkov had signed a decree on 28 November classifying 31 oil, gas, and condensate fields in Russia as "strategic", thereby restricting participation by foreign companies in the development of these fields. Under legislation that the government has been mulling for more than two years, oil and gas fields classified as strategic can only be operated by majority Russian-owned companies, although foreign firms are still welcome to participate and invest as minority shareholders. Although there is broad support in the government, legislation to codify these restrictions was pulled from the Duma (Russia's lower house of parliament) before a crucial second reading earlier this year, forcing a delay in the anticipated passage of the law until a new Duma convenes (see Russia: 16 October 2007: Uncertainty Continues as Russian Government Puts Planned New Subsoil Law on Hold).

Passage of the legislation is virtually assured, particularly after United Russia, the pro-presidential party, scored a crushing victory in the country's legislative elections this past weekend. With 64.1% of the vote, together with the 7% threshold for political parties to enter the parliament under Russian law, United Russia is set to secure more than two-thirds of the seats in the next parliament. Support for the "strategic fields" legislation is unquestioned, so the only real matters still to be addressed are the issues of what exactly constitutes "strategic". The debate continues to focus on the threshold for a field to be designated strategic, with a proposal that non-majority-Russian-owned companies be prohibited from operating fields with reserves of more than 70 million tonnes of oil (513 million barrels) or 50 bcm of gas.

Yesterday, for the first time, the government unveiled which gas fields exactly would be virtually off-limits to foreign investors. Several oilfields have been identified, but the revelation of the gas and condensate fields will clarify for foreign companies—many of which are chomping at the bit to invest in Russia's gas upstream and help bring new supplies to Europe to meet the continent's rising gas demand—which fields they are prohibited (or at least restricted) from investing in. The list includes fields in the Yakutia area, the Yamal-Nenets autonomous area, the Barents Sea, the Kara Sea, and the Sea of Ohotsk.

• Yakutia fields: The Verkhnevelyuchanskoye oil and gas field, the Sobolokh-Nedzhelinskoye and Srednetyungskoye gas condensate fields, the Chayandinskoye and Tas-Yuryakhskoye oil and gas condensate fields.
• Yamal-Nenets fields: The Antipayutinskoye, Verkhnetiuteyskoye, Gydanskoye, and Minkhovskoye gas fields, the Zapadno-Seyakhinskoye, Kruzenshternskoye, Malyginskoye, Severo-Tambeyskoye, Soletskoye-Khanaveyskoye, and Tasiyskoye gas condensate fields, the Arkticheskoye, Geofizicheskoye, Zapadno-Tambeyskoye, Neytinskoye, Nurminskoye, Rostovtsevskoye, and Utrennoye oil and gas condensate fields.
• Barents Sea fields: The Ludlovskoye and Murmanskoye gas fields and the Ledovoye gas condensate field.
• Kara Sea fields: The Antipayutinskoye, Semakovskoye, and Tota-Yakhinskoye gas fields, the Leningradskoye and Rusanovskoye gas condensate fields.
• Sea of Okhotsk fields: The Kirinskoye gas field.

Outlook and Implications

Taken together, the list of fields holds reserves of an estimated 5.2 tcm of gas, equivalent to about one-sixth of the total proven gas reserves of Gazprom, the Russian gas giant. The designations of these fields as strategic will give the government the right to choose the developer itself without holding a tender, according to Vedomosti, which obviously puts Gazprom in an even more optimal position to secure the rights to development of these fields. Moreover, the list of fields designated as strategic includes nine fields that are offshore and thus further restricted to development only by Russian state-owned companies. Thus, Gazprom is positioned to operate these fields and choose whether or not to partner with foreign firms, who will at least know that they have no option to operate or hold majority stakes in these fields.