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U.S. Exxon Neftegas asks Russian government to double Sakhalin-1 costs - paper

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(updated 18:26 28.10.2014)
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U.S. company Exxon Neftegas, the operator of the Sakhalin-1 oil and gas project, has suggested that the Russian government double the project's capital and operating costs to $47.9 billion and $52.2 billion respectively.

U.S. company Exxon Neftegas, the operator of the Sakhalin-1 oil and gas project, has suggested that the Russian government double the project's capital and operating costs to $47.9 billion and $52.2 billion respectively, Vedomosti business daily reported on Thursday, quoting an unnamed authorized governmental body source and a ministry official.

The updated development and extraction project presented by Exxon to the authorized governmental body also stipulates delays in the development of the oil fields. The project proposes shifting the Odoptu and Arkutun-Dagi deposit development deadlines for two years and the Chaivo field second stage for four years, one of the sources told the paper, adding however that the general deadline of the project had not been changed.

Exxon Neftegas was asked to prepare a new project by Russian government officials, the paper said.

According to the old document approved in 2003, Sakhalin-1 capital costs were expected to amount to $20.6 billion but two years later Exxon altered the project's concept without any government approval, announcing the need to raise the costs to $22.5 billion while its operating costs grew to $25.8 billion from $22.1 billion, the paper said.

As a result, the Russian government based its projections on one document while the operator referred to another document, an official familiar with the procedures told the paper.

In June 2010, Alexander Khoroshavin, the Sakhalin region governor, warned Exxon that the government would find another operator, while the authorized government body rejected the company's 2010 cost estimate, agreeing to approve only $972.8 million out of the requested $3.5 billion.

A source familiar with the authorized government body's stance said government officials were unhappy with the operator's new cost estimate. Exxon's evaluation is based on the industry inflation indicators provided by the CERA agency and gives no clear-cut idea on the causes for cost increases, the paper said.

An ExxonMobil spokesman declined to comment on the project's details, which could make Sakhalin-1 the most expensive project in the Russian oil sector, the paper said.

Russian government officials also declined to comment on possible changes in the project's costs, the paper said.

Exxon Neftegas is expected to submit a new economic model of the project to the authorized agency on Friday, the paper said.

 

MOSCOW, October 14 (RIA Novosti)