Statoil playing ‘risky Russian game’

Warning: Pavel Khodorkovsky

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By Steve Marshall and news reports

09 May 2012 14:42 GMT

Statoil is playing a dangerous game by entering into a joint venture deal with Rosneft and could risk being dumped at a later date if the Russians decide to change the rules, the son of jailed former oil tycoon Mikhail Khodorkovsky has warned in reports.

The co-operation pact signed at the weekend by the respective state oil companies of Norway and Russia will give Statoil a 33.33% stake in joint ventures for exploration of four licences in the Barents and Okhotsk seas that reportedly could require investments of $100 billion.

It will also require the transfer of technology from Statoil, which already has extensive experience of Arctic exploration in the Barents.

However, it has subsequently emerged that Statoil will have to cover the entire exploration costs for shooting of 2D seismic and drilling of at least six wells across all the tracts, though its share of development expenditure will be limited to 33%.

The company will also have to reimburse Rosneft for historic costs on the licences, as well as 33.3% of expenses incurred by the Russian company in acquiring the blocks.

Furthermore, Statoil will have to pay a bonus to Rosneft for each commercial oil and gas discovery made on the acreage, while decisions made in the exploration phase must be unanimous between the two partners.

Pavel Khodorkovsky, the 27-year-old son of the former boss of now defunct Russian oil company Yukos, has now warned in interviews with Norwegian media that Statoil is “going to bed with the devil”.

His father Mikhail, once Russia’s richest man, was jailed in 2003 on alleged tax and corruption charges under the previous regime of recently re-elected President Vladimir Putin, while Yukos was declared bankrupt and its producing assets sold to Rosneft.

Khodorkovsky junior fears Statoil ultimately could suffer the same fate as other multinationals such as BP and Shell that have been left out in the cold by the Russians when they have made the necessary investments or if their projects have failed to live up to expectations.

“The benefits of this agreement do not outweigh the risks. Just take a look at history. Foreign companies are invited into Russia, but they do not earn money. BP was forced out of Russia. How will Statoil prevent this happening to them?” he told newspaper Finansavisen.

Statoil, he said, runs the risk of making major investments in Russian exploration and development, as well as transfer of its technology and expertise, only to see the door slammed in its face as framework conditions are changed.

“When the necessary technology is built up and the first discoveries are made, Statoil will be diluted… There is no such thing as judicial rights in Russia. This is a corruption-riddled country,” he added.

Khodorkovsky also claimed the Russians could use the Statoil-Rosneft pact to gain greater leverage over exports of Norwegian gas by their major rival in the European market.

His warning was echoed by petroleum expert Professor Petter Osmundsen, who told business daily DN: “When Statoil has paid its entry fee, paid for all the exploration costs and perhaps the greater share of development costs, it will be locked in with weak bargaining power.

“When you also take into consideration that Russia does not have a tradition for honouring agreements, this seems highly risky. The duration of the repayment period will be very important,” he added.

The pact with Statoil is modelled on earlier agreements signed by Rosneft with Eni of Italy and US supermajor ExxonMobil.

Statoil’s exploration chief Tim Dodson told an analysts presentation that the historic costs related to the Russian licences were expected to be “very limited” and there would only be small signature bonuses paid to the state.

He also pointed out that the licence agreements were long term, covering a period of 30 years, which meant that there would be plenty of time to make the right decisions on exploration and development.

And he told DN: “This is not a unique agreement. It is normal in many other parts of the world [for partners] to bear the costs  of the state company.”

Chief executive Helge Lund has acknowledged the potential risks involved in the deal, but told the newspaper: “We must make an evaluation of risk in all agreements, including this one, in relation to political, economic and technological risk. This agreement is built on mutuality. Both parties have an incentive to work together.”

However, Khodorkosky said his advice to the Norwegian company was simple: “Do not proceed, but run from this agreement with Rosneft,” he said.