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AFX News / Euro2Day: FOCUS Gazprom’s entry in Kovykta seen positive for TNK-BP, other investors


LONDON (Thomson Financial) – Persistent claims by Russian regulators the developers of the giant Kovykta gas field, led by BP PLC joint venture TNK-BP, has breached their license obligations are likely a precursor to the entry of state-run Gazprom into the 18 bln usd project, a move that is seen to ultimately benefit TNK-BP and the rest of Kovykta”s investors, analysts said.

TNK-BP, in which BP and Russia”s Alfa Access Renova each hold a 50 pct stake, owns over 62 pct of Rusia Petroleum, Kovykta”s license holder. Interros, led by Russian billionaire Vladimir Potanin, and the Irkutsk regional government are the other key shareholders of Rusia Petroleum.

Russian authorities have accused Rusia Petroleum of not investing enough money to develop Kovykta, slowing down on production that is meant to be supplied to the Irkutsk market. They claimed Kovykta is producing less than half of its annual target output of 9 bln cubic metres, violating the terms of the license granted by the government.

The field developers, however, insisted the local region no longer needs additional supplies, a major part of which were supposed to be shipped to China. A plan to build an export pipeline, one of the key components of the Kovykta project, has been blocked by Gazprom, itself wanting to become a major gas supplier to China.

The saga, which has been going on for nearly two years, is now entering the “end-game” despite repeated threats of licence cancellation by regulators, led by Oleg Mitvol, the deputy chief of the Russian environmental watchdog Rosprirodnadzor, most analysts believe.

“We suspect this to be a precursor to a deal being struck with Gazprom, with the likelihood being that Gazprom will acquire a stake in the massive Kovykta field on ground-floor terms,” said Citigroup.

Citigroup said it views such an outcome as positive as it should pave the way for the full-scale development of the field, with potential to export gas
eastwards to China via a new pipeline.

Industry experts compared Gazprom”s effort to muscle its way through Kovykta as a “double-edged sword”, with some investors seen to initially be disappointed with the expected significant cut in TNK-BP”s interest in the field, believed to be holdings 2 trln cubic metres of gas, making it one of the country”s largest deposits.

But such concern will quickly subside and investors will take comfort from the fact the uncertainty over the future of the multi-billion-dollar project is finally over.

“Having Gazprom as a partner could be an impetus to bring the project up and running. The resolution of the uncertainty should be positive for BP,” said Tony Eccles of Investec.

Gazprom is widely expected to get a controlling interest in Kovykta, with some press reports in Moscow already betting the Russian gas monopoly will end up with over 70 pct.

Once this happens, Kovykta will be the second major foreign-operated project that Gazprom successfully muscled its way through with the support of Kremlin.

Gazprom late last year secured a majority 50 pct plus one share stake in the 20 bln usd Sakhalin-2 following an aggressive environmental campaign launched by Mitvol against the project.

It paid 7.5 bln usd to acquire the stake, which halved the interests of key shareholders Royal Dutch Shell PLC, Mitsui & Co Ltd and Mitsubishi Corp to 27.5 pct, 12.5 pct and 10 pct, respectively.

TNK-BP has consistently said discussions regarding a “possible — but not yet agreed — change in partnership” in Kovykta continues.

Whether Gazprom will later on aim to get a share of the TNK-BP venture is another story, though both BP and AAR have vehemently denied persistent rumours they are planning to hand over part of their shares in the joint venture to Russian companies like Gazprom and Rosneft once the lock-up period expires at the end of the year.

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