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Financial Times: BP and Rosneft sign $700m Sakhalin deal

By Ed Crooks, Energy Editor: Published: November 22 2006 20:47 | Last updated: November 22 2006 20:47

BP has agreed a deal with Rosneft, Russia’s biggest oil company, to expand their joint venture that is exploring off Sakhalin Island in the far east of the country.

The two companies planned to invest $700m (£366m) in the area, they said in a statement.

BP, which bought a $1bn stake in Rosneft when it floated in London earlier this year, is paying for the exploration activity, including the planned drilling of six wells.

The UK oil group will recoup its investment from the joint venture once it begins production.

Two licence blocks totalling about 21,000 square kilometres in area have been put into the joint venture, which is owned 49 per cent by BP and 51 per cent by Rosneft.

So far, BP’s investment in the Sakhalin region has been modest.

It has drilled four wells, for a cost that has been estimated at about $200m.

The area to be explored is to the north and east of the island, in water that is not particularly deep but ices up during the winter.

Lord Browne, BP’s chief executive, and Sergey Bogdanchikov, Rosneft’s president, signed a joint statement describing the agreement as “the major step in the ongoing cooperation of our companies [in] offshore Sakhalin”.

Recent moves by Russian authorities and companies – in particular the objections raised against Royal Dutch Shell’s Sakhalin-2 project – have suggested that the political climate is becoming increasingly hostile to international oil companies operating in the country.

BP’s agreement is another indication, however, that some deals can still be done.

Last week TNK-BP, BP’s 50 per cent-owned Russian joint venture, announced an agreement with Gazprom, the gas monopoly in which the Russian government has a controlling stake. The agreement is to process “associated gas”, produced as a by-product of oil extraction.

Also on Wednesday, Lord Browne met Alexei Miller, Gazprom’s chief executive, in Moscow.

In a statement after the meeting, Gazprom said: “The companies discussed the prospects of realising big joint projects and co-operation in trading liquefied natural gas.”

BP would not give any further details of the discussions but suggested no noteworthy moves were imminent.

In September it signed a small deal to supply LNG to Gazprom, which the Russian company then sells in the US. Shares in BP fell 7p to 578p.

Copyright The Financial Times Limited 2006

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