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29 Aug, 2008 04:42

Lukoil and ConocoPhillips go to the end of the earth for more fuel

Lukoil has opened the world's most northern oilfield, which will pump 7 million tons a year to the West. Built with the help of Alaskan oil specialists ConocoPhilips, the deposit shows the extremes to which energy companies now have to go to find new supp

The Russian-American consortium starts production at the Yuzhno-Hilchuyu oilfield in the Arctic Circle. Its 500 million barrel reserves will supply Europe and America, Russia's Far North is half the distance to the United States as the Gulf states.

With chest-high snow 11 months of the year the deposit is a victory over the elements. ConocoPhilips gets 30% of profits in return for its experience as Alaska's largest oil and gas producer.  James Mulva, Chairman and CEO of the American company says the conditions add to the costs.

“Everything that costs when you operate in the Arctic sphere is normally far more expensive. With no infrastructure, we have the challenge technically of doing it in a reliable and efficient way.”

The project has become more viable after President Medvedev slashed oil taxes last month. The 10-year exemption on new fields such as this one will free up $5.2 Billion a year. But the Lukoil Head, Vagit Alekperov, says Russian firms need 3 times that for new exploration.

“This field puts Russian oil on the global market. Russia has unique oil and gas reserves but in extremely difficult conditions in the Far North. The government must create laws to allow companies to operate there.”

Next month energy firms send proposals to government for extra tax cuts. They want laws to kickstart a industry that's starting to slow.

Lukoil paid over $27 Billion in tax last year, its president said the reforms would save this plant alone $500 million over its lifetime. The oiler recently announced its first ever drop in production.  The tax cuts could revive oil production in Russia.