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The Guardian: BP offers Gazprom a stake after Kremlin sets impossible target

Terry Macalister
Friday February 16, 2007

BP has offered to hand over a majority stake in Kovykta, one of Russia’s most exciting gas projects, to the state-owned Gazprom. The concession follows mounting pressure from the Kremlin similar to that which forced Shell to cede control over the Sakhalin-2 scheme.

The British company, whose Russian joint venture TNK-BP holds a 65% stake in Kovykta, was told last week by Russia’s resources ministry that it must put right violations by May or lose the operating licence for the eastern Siberian field.

The alleged violations concern BP-TNK’s failure to produce the required 9bn cubic metres of gas from Kovykta in 2007 but the firm has no chance of meeting this target. The Russia Petroleum subsidiary of TNK-BP is on course to produce 1.5bn cubic metres and expects to raise this to 2.5bn, but experts say the 9bn was based on there being a local market for gas. This has not happened, leaving TNK-BP unwilling to increase output only to flare off gas.

Amid speculation that Gazprom wants a 75% stake, BP said yesterday that the Russian gas monopoly would make a useful partner and had been invited into the project on terms it should find agreeable.

A BP spokesman said: “We believe this is a very attractive offer for them and will deliver a majority interest in the project, whilst retaining a material stake for TNK-BP. We remain convinced that a sensible commercial outcome will be reached.”

Once the shareholding was agreed, Gazprom and TNK-BP would work on a development plan for the field “consistent with regional development goals”, he said.

The warm public words hide private frustration that BP is being strong-armed in the same way that Shell was at Sakhalin with a series of threats from various ministries. There are fears that TNK-BP could find itself under greater threat of takeover by Gazprom if it resists more forcefully.

The small group of Russian investors who make up the TNK part of the business are not locked into holding their shares much longer. There is speculation that Gazprom will buy them and then move in on the BP side of the business.

The warning last week about violations was delivered by Oleg Mitvol, deputy head of RosPrirodNadzor, an environmental agency inside the resources ministry, which led the charge against Shell with a series of allegations that it had broken the terms of its operating licence.

While BP is playing down the significance of the business to its group revenues, it has high hopes of future gains. Kovykta holds an estimated 1,900bn cubic metres of gas. Production could rise to 15bn if it overcame the Kremlin’s opposition to building a pipeline so it could supply gas to the burgeoning China market.

Alistair Darling, the trade and industry secretary, recently warned Russia that foreign investors were “apprehensive” after Shell’s experiences at Sakhalin and urged it to abide by “established laws”.,,2014450,00.html and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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