Private enterprise presents many unidentifiable risks on the world stage of the oil and gas industry. Governments sometimes change their minds. The one question an operator never wants to hear: “What contract?”

British company, Timan Oil & Gas, acquired Nizhnechutinskoye field in the north of European Russia, Timan-Pechora Basin of the Komi Republic, in 2005. Recent drilling has increased estimated reserves for the find to 734 MMbbl of oil with 2 Bbbl of in-place reserves, according to the Russian classification system.

The field was assessed by Miller & Lents prior to development. The international consultant estimated reserves for the field at 191.3 MMbbl in proved and probable reserves, and the revised reserves were approved in July 2008.

The Russian daily, Vedomosti, reported in late October that the find was classified as “strategic” under Russian law, which apparently means that Timan Oil & Gas could lose the development rights to the giant find.

Under Russian law, fields containing more than 513 MMbbl in reserves are classified as strategic, which could nullify Timan’s license. Russian newswire RIA Novosti reported that, in the case of revocation, Russian authorities must provide the foreign company with compensation for the funds invested in the project.

Through its subsidiary, Neftegazpromtech, Timan Oil & Gas holds a prospecting and development license for the field until 2024. Time will tell if the field will still be in the company’s hands in 16 years. The decision to reclaim the find has not yet been made.

According to Valery Nesterov, Troika Dialog analyst, the company is unlikely to have its license withdrawn as Nizhnechutinskoye is a complicated site, with shallow, extensive reserves that will require major investments to bring to production.

In another region, similar developments are culminating in delayed returns on investment. According to the Canadian Press, Ecuador is giving the boot to Spain’s Repsol YPF, for refusing to adhere to government demands that it be paid for services rather than receiving a per-barrel percentage.

Oil Minister Derlis Palacios announced that the Ecuadoran government has sought to renegotiate contracts with five private oil companies to increase its portion of the country’s oil revenue. “Negotiations with Repsol had failed,” Palacios told a news conference in Quito. “Repsol constantly changed its criteria, and its lack of seriousness in meeting commitments has kept us from reaching an agreement.”

Kristian Rix, a spokesman for Repsol said, “We don’t consider the negotiations closed and we still hope to arrive at an agreement on a new contract,” adding that Repsol was surprised by Ecuador’s announcement.

In September, Ecuador announced that Repsol had agreed to switch to a fee-for-services contract and to return some 936,000 bbl of crude worth an estimated US $100 million. However, Ecuador’s previous oil minister resigned in November, leaving negotiations to Palacios, whose first public declaration was to warn companies not to “play games” with the country.

Companies that have opted to transform their original agreements include Paris-based Perenco SA, China’s Andes Petroleum, and Brazil’s Petrobras. US-financed City Oriente opted to terminate its contract to receive $69 million in compensation, according to the Associated Press.

Repsol currently operates three oil blocks under contract until 2012. According to Ecuador’s Oil and Mining Ministry, the blocks produce 50,000 b/d of crude.
The oil and gas industry is inherently risk intensive. Unfortunately, while technology mitigates a substantial amount of operational risk, there seems to be no “magic bullet” for the uncertainties brought on by geopolitical concerns.

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