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Daily Telegraph: Moscow bears down on BP gas project

By Russell Hotten, Industry Editor
Last Updated: 12:28am GMT 15/02/2007

BP faces a huge loss in revenues from its joint venture in Russia after the state-owned energy group Gazprom demanded to take a 75pc interest in one of the world’s largest gas fields.

The Kovykta gas project, controlled via TNK-BP, a 50-50 joint venture between the UK company and other investors, is one of Russia’s prize energy assets and has the potential to be a major earner.

Gazprom was known to want a role in the project, but its insistence in recent negotiations that it wanted 75pc is much higher than expected. One analyst said: “The fate of TNK-BP’s Kovykta project is currently extremely uncertain.”

Although Kovykta is not TNK-BP’s only asset, it is potentially the most lucrative and the project’s vast reserves would help underpin the UK company’s growth. It is feared that Gazprom’s claim over Kovykta is part of a longer-term plan to take control of TNK-BP.

Last week, BP chief executive Lord Browne said: “BP has no intention of selling its shares in TNK-BP. Our partners own their own shares and it’s up to them to decide what to do with them.”

Last year Gazprom took a 51pc stake in Royal Dutch Shell’s Sakhalin 2 field following a campaign against the Anglo-Dutch company by Moscow authorities.

In an echo of Shell’s problems, Russian authorities have begun putting pressure on BP, claiming that it has breached licences and has not met production targets. TNK-BP also faced claims for back taxes.

BP’s move into Russia was a landmark deal for Lord Browne, but the investment could now turn sour as President Putin’s government tries to claw back assets it believes were sold off too cheaply. With oil and gas prices having hit record levels, Moscow’s aim is to secure a larger slice of revenues.

The eastern Siberian field, which at present supplies only the local Russian market, produces around 1.5bn cubic metres of gas a year. But by the middle of next decade that could be 15bn. Kovykta holds an estimated 1.9 trillion cubic metres of gas.

Last month Russia’s environmental watchdog, Rosprirodnadzor, said that TNK-BP was in breach of its licence because it had underexploited the gas field. And last week the company was given three months to improve production.

Earlier this month, during a trip to Moscow, UK trade and industry secretary Alistair Darling fired a warning shot. “There was an initial backlash following Sakhalin and they [the Russians] are aware of that,” he said. Referring to Kovykta, he added: “What we have said is that people are now apprehensive, and it would be far better if these matters were settled in accordance with established laws.”

Gazprom could not be reached for comment. BP said it was in talks with Gazprom, but declined to comment further.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/02/15/cnbp15.xml

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