Financial Times: BP under pressure on Kovykta

By Arkady Ostrovsky in Moscow
Published: December 22 2006 21:00 | Last updated: December 22 2006 21:00

TNK-BP, the Anglo-Russian oil joint venture, is bracing itself for a full investigation within weeks into its licence agreement for a giant Siberian gasfield as the Kremlin tightens its grip on the country’s energy resources.

Russia has used environmental audits and regulatory threats to restore state dominance over oil and gas supplies. This week saw Gazprom take a controlling stake in Royal Dutch Shell’s Sakhalin-2 project after months of pressure.

People familiar with the situation said Gazprom’s negotiations with TNK-BP were likely to follow a similar pattern to Shell’s prolonged battle with state officials and the Russian gas monopoly.

TNK-BP has already offered Gazprom majority control over the Kovykta gasfield, but has insisted that Gazprom should pay for its stake with cash or assets.

Russian authorities have already stepped up pressure on TNK-BP, accusing it of breaking a licence agreement on production levels. The prospect of losing the licence for Kovykta is likely to soften TNK-BP’s negotiating position.

Gazprom and TNK-BP have been talking about the joint development of the project for years but have not reached an agreement. Although TNK-BP has a licence to develop the field, expected to supply gas to Asian countries, it cannot do so without Gazprom agreeing to build an export pipeline for the field.

Gazprom, which has a mono-poly over the pipeline network and gas exports, has been stalling negotiations for months. It says it has other priorities.

The authorities have decided to investigate the Kovykta licence because of TNK-BP’s alleged failure to meet its conditions.

Under the licensing agreement, TNK-BP was obliged to produce 9bn cubic metres of gas by the end of this year. TNK-BP has said it cannot produce anything near this amount of gas because it has nowhere to sell it.

“We could not burn this gas,” TNK-BP said.

The talks between Gazprom and TNK-BP have intensified in the past few months and it is understood TNK-BP has made Gazprom a more lucrative offer that includes participation in other gas projects.

Once Gazprom reaches a deal with TNK-BP, the threat to the licence is likely to disappear.

Alexander Medvedev, deputy chief executive of Gazprom, on Friday said Sakhalin-2 would not have encountered problems if Gazprom had been part of the project from the start.

Copyright The Financial Times Limited 2006

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