Western Oil Firms Stuck in Siberia Thicket

KOGALYM, Western Siberia -- Like mariners lured by sea-nymphs out of Greek mythology, Western oil companies in Russia have found themselves on a rocky coast.And like the Soviet system, whose collapse in 1991 opened a tempting channel, some sank without trace. Others steered clear or charted a cautious course before inching ahead.A few, including the Canadian firm Calgary Overseas, navigated their way to some of the world's richest oil deposits and now work with local partners in Siberia's mosquito-infested swamps.Calgary Overseas, operating out of its aptly named Siren base near Kogalym, appears to have succeeded in a region where others have run into deep trouble.Its well-workover project with Russian firm Kogalymneftegaz ends in about a month. Both partners seem satisfied and are considering setting up a new joint venture."Kogalymneftegaz thinks the work has been well done," said Semyon Vainshtok, director general of the Russian company, the main production unit of the giant Lukoil conglomerate.Vainshtok acknowledged that the climate for Western service companies in Russia had taken a turn for the worse."The situation in the Russian oil market now has put a question mark over the future of such projects as rehabilitating idle wells," he told a group of reporters visiting Kogalym, about 2,500 kilometers east of Moscow.More than 40,000 Russian oil wells, about a third of the total, are lying idle due to lack of cash for rehabilitation and deliberate shutdowns.Russian producers have been forced to slow down output because storage facilities and pipelines are brimming with unsold oil products. Cash-strapped refineries, lacking solvent customers, have reduced their crude intake."If good wells are being stopped, it is evidently not worthwhile working over idle wells," Vainshtok said. Western oil industry executives say both the Russian and foreign partners in joint ventures are struggling.Horror stories abound. Many joint ventures are cutting staff and spending as the tax and legal environment proves more hostile than they had bargained for. Some have faced legal challenges.Last month a Moscow court had suspended the license of the U.S.-Russian White Nights joint venture to operate one of two fields in Western Siberia, said Interfax news agency.It said a local ethnic group won a suit against the State Geology Committee and the Khanty-Mansiisk district government. The group charged that the license was issued without a tender being held as required by a 1992 law.The State Geology Committee says it plans to appeal. White Nights, involving Phibro, Anglo-Suisse and Siberia's Varyeganneftegaz company, has also been plagued by difficulties in obtaining an export tariff exemption.Earlier this year, the small U.S. services firm Frankenburg Inc. filed a suit in a Houston district court against Lukoil, which has denied the charges of fraud and conspiracy.In Kogalym, the name Frankenburg Inc. evokes bitter memories more than a year after the Texas-based firm pulled out of the desolate region."We think Frankenburg organized this campaign because Lukoil was beginning to move into the world oil business faster than Western companies would like," Kogalymneftegaz's Vainshtok said.Two other foreign projects have fared better, including that of Calgary Overseas. The firm, which started work here in 1992, has about 60 Canadians and 140 Russians in the area.In a similar operation to that of White Nights, Calgary has six service rigs and has completed more than 900 workovers."We are relying on Lukoil to do the marketing and they have been doing very well," said Calgary manager Robert Lipsett.