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Exploration and production projects in

Russia’s offshore fields provide ample opportunity for industry development. Large scale construction projects require large number of trucks, road construction equipment, onshore and offshore facilities.   

Under the Federal Law “On Production Sharing Agreements”, Russian-made equipment and local services should account for at least 70 percent of equipment and services used by offshore field operators. As the production sharing regime  has been much criticized, the agreements are not used in the Prirazlomny and Shtokman projects. Unfortunately, the criticism of production sharing  allowed “to throw the baby out with the bathwater”   and the established norm of  70%  was forgotten. There is no express requirement regarding

Russia’s participation in the Prirazlomny and Shtokman projects.   

The lack of the national industry regulations runs contrary to the world practice.   Thus, the Majlis of Iran has passed a law that says  at least 50 percent of products and services used by oil and gas field operators in their projects must be made in Iran.  It is this stringent statutory requirement that will get foreign operators to create joint ventures in Iran and invest into the Iranian industry. Norway and China imposed conditions that oblige field operators to contribute to industrial development of these countries.  Offshore projects allowed Norway to build and develop its machinery and equipment industry from zero level.      

The Russian Federation had well-developed machine building sector long before the above mentioned countries designed their first oilfield equipment.  However, Gazprom’s subsidiary obtained a permit to import duty free and VAT free equipment during the whole period of the Prirazlomny project.  The Shtokman project operator plans to get similar preferences  for foreign suppliers.

The situation concerning Russian suppliers’ participation in the offshore projects is very disturbing. The old and written off platform  Hutton TLP was brought into Russia to work in the Prirazlomny project.  In 2007, Gazprom placed an order with the Vyborg Shipyard for two platforms worth more than USD $2 billion for the Shtokman field.  The contract amount and the  Russian shipyard’s name were much publicized by Gazprom but it was not announced that more than half of that amount (by estimates, over 70%) will be transferred abroad.  Moreover, Gazprom would have to pay extra to the foreigners due to changes of the dollar exchange rate.   

Offshore field operators use contractors which are not natural monopolies and can afford making major acquisitions from abroad without any tenders.  Statistics are falsified by saying that “Russia’s participation” includes transfer of money to contractors that do not actually use local-made equipment.  

The situation around Russia’s participation in the offshore projects will be considered at the 4^th  annual conference “Offshore Field Equipment” (Neftegazshelf-2009) on December 3, 2009.

The Organizing Committee: (495) 514-44-68, 514-58-56, www.n-g-k.ru

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