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Russia: BP and Rosneft Ready to Drill Sakhalin-5

Energy major BP and Russian state oil firm Rosneft have signed an operational and shareholding deal for their Sakhalin-5 project, opening the way for drilling to start, BP's Moscow spokesman said Thursday.

"Drilling will begin in the nearest future," he said adding that BP agreed to finance the entire development costs for Sakhalin-5, which experts put at $2.5 billion to $5 billion over the next decade.

The project is situated off Russia's eastern coast and estimated to have a maximum oil and oil-condensate output of 700,000 barrels per day -- similar to that of OPEC member Qatar.

A loose alliance signed in 1998 gave BP a 49 percent stake in the venture, while operator Rosneft had 51 percent.

BP has already hired rigging equipment to begin drilling the first of five exploratory wells this summer, local news agencies reported in June.

Rosneft is involved in five out of the six Sakhalin blocks, potentially among the largest and most ambitious energy projects of the 21st century, in seas that freeze for up to six months a year.

Disappointing results led to BP and Rosneft abandoning exploration wells on two exploration blocks of Sakhalin-4 earlier this year.

Nevertheless, analysts have high hopes that Sakhalin crude oil will help to replace dwindling reserves in the United States, the North Sea and elsewhere this century. Its natural gas is destined for nearby energy-hungry Asian markets.

Sakhalin-5 is well behind Royal Dutch/Shell-led Sakhalin-2, which has been producing oil since 1999 and to which Shell last year pledged a further $10 billion investment to build the world's biggest LNG plant. ExxonMobil-led Sakhalin-1 is due to start up next year.

BP, a pioneer of the boom in Russian oil investment, has kept its Sakhalin interests separate from its Russian oil joint venture TNK-BP, into which it wrapped its other Russian interests last year.

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