UPDATE 3-Chevron, Rosneft launch $32 bln Black Sea project

* Firms to invest $1 billion in exploration

* Biggest energy deal with foreign major in 2010

* Total investment could reach $32 billion

* Chevron CEO asks PM Putin for tax breaks

(Adds share prices in paragraph 12)

By Gleb Bryanski

NOVO-OGARYOVO, Russia, June 17 (Reuters) - Oil major
Chevron (CVX.N) and Russia's largest oil producer Rosneft
(ROSN.MM) agreed on Thursday to invest $1 billion in a Black
Sea oil exploration project whose total cost may reach $32
billion.

The agreement is the biggest energy deal in Russia
involving a foreign major in 2010. It also marks Chevron's
biggest foray into the Russian market since a failed attempt to
buy a stake in the now defunct oil firm YUKOS in 2003.

Prime Minister Vladimir Putin oversaw the signing ceremony
in his country residence, stealing the show from President
Dmitry Medvedev, who is due to address a crowd of international
investors at the St. Petersburg Economic Forum on Friday.

"I am very pleased that you are entering a different level
of cooperation -- we are talking about production of
hydrocarbons," Putin told Chevron Chief Executive John Watson,
asking him to ensure the environmental safety of the project.

YUKOS, whose owners promised "lifelong litigation" against
the Kremlin after the company collapsed under back-tax claims,
previously held a licence to the Val Shatskogo (Shatsky Ridge)
deposit, which was later transferred to Rosneft.

"What I am paying a particular attention to is that you are
taking certain risks, I also mean geological exploration. That
implies for us (the government) certain tasks linked to support
for such projects," Putin said without elaborating.

IMPORTANT BUT RISKY ENDEAVOUR

Russia's top energy official, Igor Sechin, told reporters
the initial investment will amount to $1 billion. The firms
said in a statement that Chevron will finance exploration
activities, with the drilling expected to begin in the end of
2011.

Sechin said Chevron will help Rosneft raise required funds
for the project, which will be operated by a holding company,
with stakes distributed "in accordance with competence and
financing." Rosneft will hold the licence to the field.

Sechin said that if exploration is successful, total
investment for exploration and production at the field could
amount to as much as 1 trillion roubles ($32.07 billion). He
gave no timeframe for the investment.

Troika Dialog analyst Valery Nesterov said the venture may
resemble Rosneft's joint venture with China's state oil firm
CNPC, Vostok Energy, in which Rosneft has 51 percent and CNPC
49 percent. He called the project "an important but risky
endeavour."

The licence covers an area of 8,600 square kilometres,
located (3,300 sq miles) in the eastern part of the Black Sea,
whose maximum depth reaches 2,200 metres (7,200 ft) and which
is considered difficult for deep water drilling.

Chevron shares traded 0.5 percent higher while Rosneft
stock closed 5.5 percent down on speculations that oil major BP
(BP.L) may sell its 1.3 percent stake in the Russian firm due
to its financial woes. [ID:nLDE65G1PM]

BP's oil spill in the Gulf of Mexico has highlighted the
risks of offshore oil exploration. The Black Sea is lined with
resorts including Sochi, the Russian city hosting the 2014
Winter Olympics.

"Chevron has successfully drilled 375 deep water wells in
complex environments... We are confident that we will continue
to drill deep water wells safely," Watson told Putin, raising
the issue of tax benefits for the field.

"It is a highly prospective area, it does have geological
risks and high costs. We will need to work closely with the
government to ensure that proper fiscal terms are in place to
allow this project to develop rapidly," Watson said.

Russia's oil industry is heavily taxed through the mineral
extraction tax and oil export duty, but firms operating
difficult projects have in the past successfully lobbied for
tax breaks.

In July 2009, Russia government scrapped the mineral
extraction tax for Black Sea shelf deposits until production
from the fields reaches 20 million tonnes, but the oil that is
produced remains subject to export duty.

The government also lifted export duty on oil extracted at
22 remote East Siberian fields prompting firms to lobby for a
similar breaks at offshore projects. Sechin said that reducing
the duty for the Black Sea project has not yet been discussed.

Sechin said that under a new tax regime for East Siberian
fields, in place from July 1, the firms will pay only 45
percent of the normal duty if the oil price is above $50 until
the internal rate of return (IRR) of a project exceeds 15
percent, at which point the normal rate will be applied.

"A similar tax regime will not necessarily be applied to
this project. But during its realisation, we will have an
opportunity to evaluate the (tax) burden on the partners,"
Sechin said.
(Additional reporting by Jessica Bachman; Editing by
Marguerita Choy)