Dow Jones Newswires: TNK-BP Discusses Partnership With Gazprom Aimed at Developing Gas Field in Kovykta

By Jackie Range
January 25, 2007

DAVOS, Switzerland (AP) – OAO TNK-BP, the BP-Russian oil joint venture, discussing a partnership with OAO Gazprom aimed at developing its Kovykta gas field, chief executive Robert Dudley said Thursday.

In an interview with Dow Jones Newswires on the sidelines of the World Economic Forum’s annual meeting, Dudley said his company was not in danger of losing its license to develop the massive gas field in Siberia, but added that even if it were to lose that license, the company would not be detrimentally affected.

“I don’t think this will happen,” he said. “If the license was taken away, it wouldn’t actually make very much difference.”

TNK-BP produces less than the 9 billion cubic meters of natural gas a year technically required to keep the license. But it has argued with Russian regulators that it is because local demand is below that threshold to begin with.

TNK-BP has also been effectively blocked from exporting the gas by the Russian gas monopoly Gazprom, which controls the country’s sprawling network of transmission pipelines.

“We have continually written and communicated with the government that nine (bcmpa) is not feasible, given the local demand,” Dudley said. “I think a full review of this will show this.”

Dudley said the company is looking into signing export contracts with China for Kovykta gas, and is exploring the possibility of sending liquefied natural gas from Russia’s Pacific Coast.

Kovykta is located hundreds of kilometers (miles) from the Pacific Ocean, however, meaning gas would still have to travel great distances by pipeline before it could be exported by tanker as LNG.

By law, Gazprom is the only company in Russia that can export gas, meaning its cooperation will be crucial if TNK-BP is to monetize Kovykta’s reserves.

Analysts say that cooperation will only be forthcoming if TNK-BP agrees to let Gazprom into the project on terms that suit the monopoly.

Environmental regulators are already preparing a review of the TNK-BP’s license, suggesting that its experience at Kovykta could mirror that of Royal Dutch Shell PLC’s US$22 billion (euro17 billion) project on Sakhalin island, off Russia’s Pacific coast.

After a barrage of environmental probes led by the Natural Resources Ministry’s watchdog agency, Shell and its Japanese partners agreed in December to sell a controlling stake to Gazprom.

Asked about reports that he threatened to leave TNK-BP if not named to replace outgoing BP PLC CEO Lord Browne, Dudley said he was “very supportive” of newly named BP CEO Tony Hayward, and that he was committed to the company.

“He’s a friend of mine and I’ve known him for some time, anything else would be speculative,” Dudley said.

TNK-BP is half-owned by BP PLC, and half-owned by a consortium of Russian investors.

Jackie Range is a correspondent for Dow Jones Newswires in London.

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