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Bloomberg: BP’s Russian Gas Field to Be Audited This Week, License at Risk

By James Brooke

May 20 (Bloomberg) — BP Plc’s Russian unit will be audited by the most-senior environmental regulator this week and stands to lose its license to operate Eastern Siberia’s largest known natural-gas field if it fails.

TNK-BP, a venture between BP and private Russian investors, will be audited May 23 on its production at the Kovytka field, where it has a contractual target, Russia’s Natural Resources Inspectorate said. OAO Rusia Petroleum, a unit 62 percent owned by TNK-BP, produced 1.5 billion cubic meters from the field last year, compared with a target of 9 billion cubic meters.

“If they have not fulfilled their targets, it will be the end of the license,” Oleg Mitvol, deputy head of the inspectorate, said by telephone today.

Russia President Vladimir Putin is tightening state control over the country’s energy resources, which he once described as “the holy of holies.” He wants to build up OAO Gazprom and OAO Rosneft, the state-controlled gas and oil companies, to compete with international energy companies such as BP, Royal Dutch Shell Plc and Exxon Mobil Corp.

Mitvol last year alleged environmental irregularities by Royal Dutch Shell in the construction of Russia’s first liquefied natural gas plant. That contributed to Shell’s decision to sell a majority stake to Gazprom, the gas export monopoly.

BP, based in London and Europe’s second-largest oil company, and Gazprom have been in talks about Kovytka’s future.Lawyers for Rusia Petroleum have argued that the field can’t produce as much as its target because a planned export pipeline to China hasn’t been built.

`License Obligations’

Marina Dracheva, a spokeswoman for TNK-BP, said that a judge in Irkutsk, the largest city near Kovytka, will on May 23 review a Rusia Petroleum request for a “clarification of the company’s license obligations.”

“It will be up to the courts to decide whether Rusia is in breach or not,” she said in an interview today.

Mitvol said the court had no jurisdiction over the issue.

TNK-BP is the second-largest privately owned oil company in Russia, and much of its market value is based on Kovytka. Energy analysts have estimated the value of the field’s gas at $18 billion and the cost of its development, and the pipeline to China, at $15 billion.

Kovytka is estimated to hold 2 trillion cubic meters of gas, or enough for Russia to meet 25 years of planned exports. Gazprom has said it wants to export as much as 80 billion cubic meters of gas to China, from as early as 2011.

Should TNK-BP lose the Kovytka license, foreign-controlled companies won’t be allowed to bid for it, Natural Resources Minister Yury Trutnev said in March.

TNK-BP’s Russian owners, including Alfa Group, ZAO Renova, and Access Industries, are allowed to sell their stakes after a shareholder agreement ends in December.

To contact the reporter on this story: James Brooke in Moscow at [email protected] .

Last Updated: May 20, 2007 12:03 EDT and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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