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Putin Seeks to Lure Oil Firms' Interest

Resources: Reforms will prevent a replay of previous losses, he tells U.S. executives.


HOUSTON — Now that the United States and Russia have found some common ground on weapons control and international terrorism, Russian President Vladimir V. Putin mingled with cowboy capitalists Wednesday, seeking their investments and touting the two countries' shared interest in Russia's vast oil fields.

Putin sought to assure oil executives and investors--some of whom had lost fortunes in Russia as it emerged from communism a decade ago--that economic reforms are being put in place and that Russia is showing strong growth. He insisted that investors face less risk than they did a few years ago and referred to his country as a "reliable and predictable partner" in supplying oil and gas.

Russia is rich in natural gas, oil and coal reserves. Surging oil revenue enabled Russia's real domestic product to grow 8.3% last year, while inflation fell, the foreign debt was reduced and industrial output expanded.

"Russia is a place you have to be," said Rob McKee, executive vice president for exploration production for Houston-based Conoco, which has invested $600 million in Russia and has developed a productive oil field north of the Arctic Circle.

Speaking to an audience of students, oil executives and space officials at Rice University, Putin said Russia is making the reforms required for membership in the World Trade Organization and is prepared to expand cooperation with the North Atlantic Treaty Organization.

Putin said it would benefit Russia and the United States to cooperate on energy matters.

Because the United States is eager to reduce its dependence on oil from the politically uncertain Middle East, Russia's reserves are increasingly attractive to Texas oil companies. But the relationship got off to a rocky start.

"I think there was a feeling in Washington in the early '90s that we didn't really want a vibrant, economically successful Russia," said Amy Myers Jaffe, senior energy advisor at the James A. Baker III Institute for Public Policy at Rice.

"If Russia was making money from oil and gas, it might spend that money on its military. That was the mind-set. We didn't want Russia rising back up again," she added.

"But I just don't see how we can move forward without taking a cooperative approach with Russia on energy. When we ask, 'Where is our oil going to come from in the future?' it's hard to come up with a scenario that doesn't include Russia and the Caspian."

Houston-based Parker Drilling Co. was the first drilling company granted a land contract in China, in 1980, and the first to enter the Soviet Union, in 1991. In Russia, many other early investors were undone by widespread corruption, a rudimentary legal system, ever-evolving tax codes, five-year contracts that had a life span of 30 seconds and unregulated pipeline control--and went home in disgust.

But Parker stayed the course and, although not yet profitable in Russia, has "lost less money than most others" while strengthening its position in the region, said its president, Robert Parker Jr.

Like many oil executives, Parker credits Putin with filling a power vacuum that oil companies had experienced under his predecessor, Boris N. Yeltsin.

"Putin wants to develop Russia's oil industry fast to get the economy moving," Parker said.

Oil analysts say the suspicions long held by executives of Russia's state-run oil companies--that Western investors were out to take over the Russian oil industry--have dissipated over the years, particularly as the industry began privatizing.

Last year, Parker Drilling gave a seat on its board of directors to Simon Kukes, a U.S. citizen living in Moscow who is president of Russia's Tyumen Oil Co. Its oil field known as Kashagan East wildcat could be twice the size of Alaska's Prudhoe Bay, the biggest in North America, analysts say.

"When I first went to Russia, it wasn't the workers who kept things from happening, it was the system," said John Gass, Parker's vice president for business development. "I had people tell me point-blank they just wanted our money. They'd say: 'We don't need your rigs, your equipment, your people, your expertise. Just give us your money.' And I'd say, 'Well, there are a few strings attached.' "

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