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February 11, 2005

Kremlin tightens grip on oil and gas reserves

In a trend that has been developing over the past year in connection with the Russian government's handling of Russian oil giant OAO Yukos, the Russian government announced Thursday that foreign-owned oil and gas companies will not allowed to bid at auctions this year for permits to develop several big Russian oilfields unless the companies have at least a 51% Russian-owned affiliate participate in the auctions. The new restrictions will further undermine Western investor confidence toward investing capital in the Russian oil and gas industry, which is already undergoing a sharp decline in growth.

Double-digit increases in prodution over the past several years has made Russian production one of the primary sources of additional supply that has offset rising demand from China and developing countries. However, production has now fallen for four straight months and it is widely expected that there will be an abrupt slowing in growth later this year.

The Kremlin's additional restrictions on foreign investors also rebuffs the Bush Administration's efforts to increase cooperation between Western oil and gas companies and the Russia government in the energy sector. The Administration held a summit conference earlier this month in which such business matters were discussed, but it appears that the Administration's lobbying has gone over like a lead balloon with the Putin regime.

Meanwhile, in updating the Yukos case, U.S. Bankruptcy Judge Letitia Clark will hear arguments next Wednesday in Houston on a motion to dismiss the Yukos chapter 11 case that is currently pending in Houston.

Posted by Tom at February 11, 2005 5:25 AM

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