Newspaper article The Evening Standard (London, England)

The Great New Oil Rush to Russia

Newspaper article The Evening Standard (London, England)

The Great New Oil Rush to Russia

Article excerpt

Byline: JAMES HANSAM

RUSSIA'S Sakhalin Island is a grim former Soviet penal colony which, even in czarist times, Chekhov described as a living hell, the most depressing place he had ever seen. But to Anglo-Dutch oil giant Shell, the lonely island in the Okhotsk Sea, north of Japan, is pure heaven. The oil industry in this country was once viewed as being as risky as Russian roulette - it is now seen as a sound investment.

BP recently revealed it is eyeing a deal with Yukos, an increasingly respected Russian oil titan, about developing a huge new field in eastern Siberia. "We are holding very preliminary talks with Yukos and are looking at whether there is a way to work together," says BP's Moscow external affairs director Peter Henshaw.

The company last month boosted its stake in Russian oil producer Sidanko, and it is interested in exploring off Sakhalin. It also holds a major stake in the Russia Petroleum consortium, which is to build a gas pipeline to China from eastern Siberia. "It's all part of our increased appetite for some more business here," adds Henshaw.

Less than 20 months ago, BP was threatening to pull out of the Russian oil business after losing control of a major asset in a bankruptcy action that was widely denounced as a sham.

The new air of confidence stems from President Vladimir Putin's bid to stop major foreign companies being ripped off in the way that BP was. It also stems from the arrival of stability and sustainable growth after years of post-Soviet chaos.

Another key factor is the desire of the oil majors to have a larger slice of the action in non-Opec Russia, the world's second-largest oil exporter, so protecting themselves against volatile supplies from nations in the petroleum exporters' cartel. But the new climate does not mean an end to the hardships involved in developing the former Soviet oil industry and revamping production facilities. Far from it. On Sakhalin, for example, Shell started pumping from the Piltun-Astokhskoye oilfield in 1999. …

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