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The Times: Legal battle starts over Kovykta

May 23, 2007
Steve Hawkes

BP will begin its fightback today against Russian authorities threatening the energy group’s hold on the giant Kovykta gasfield, which was discovered in eastern Siberia in 1987.

TNK-BP, the group’s Russian venture, is launching a legal action to clarify the terms of its licence amid mounting speculation that soon it will be forced to hand over a majority stake in the project to Gazprom, the Kremlin-controlled gas group.

Oleg Mitvol, the controversial deputy head of Russia’s environmental watchdog, reiterated yesterday that TNK-BP could have its licence revoked in a matter of days for failing to hit production targets. He said: “Either the company fulfils its obligations or it will lose its licence.”

Rosprirodnadzor, the environmental agency, will inspect the Kovykta field later this week.A three-month deadline to produce more than nine billion cubic metres of gas at Kovykta has already passed. However, TNK-BP argues that it is impossible to reach this target given the lack of a pipeline to reach export markets. Sources at BP claimed that the legal action would determine whether TNK-BP had to hit the nine billion cubic metre goal or simply satisfy local demand.

Analysts said that the attack by Mr Mitvol was a repeat of the tactics he used when threatening to revoke Shell’s lucrative offshore licence at Sakhalin-II. Eventually Gazprom bought a majority stake in the Sakhalin-II project.

James Neale, analyst at Citigroup, said: “The recent rhetoric implies TNK-BP will lose its Kovykta licence. However, we suspect this to be a precursor to a deal with Gazprom.”

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