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The Wall Street Journal: BP Faces Test of Russian License

Associated Press

MOSCOW — BP PLC’s license to develop a giant Siberian gas field could be revoked in days, Russia’s environmental watchdog said Tuesday, as pressure mounted against one of the last major foreign-controlled energy projects in the country.

Losing its license to the Kovykta field would be a painful blow for London-based BP since the company has appeared conspicuously eager to court favor with the Kremlin, which has aggressively expanded state control over the world’s biggest oil and gas industry.

Analysts suggest that official complaints over production quotas at Kovykta will fade just as soon as an acceptable deal is struck that gives control of the project to state gas monopoly OAO Gazprom. Such a conclusion would mirror Gazprom’s entry to the giant Sakhalin-2 liquefied natural gas development off Russia’s Pacific coast, observers say, where Royal Dutch Shell PLC was elbowed into a minority position.

Oleg Mitvol, deputy head of the Rosprirodnadzor watchdog agency, told the Associated Press that a check of the field would begin Wednesday to determine whether it was meeting its production obligations. “The time has come to fulfill the promises,” he said. “Either the company fulfills its obligations or it will lose its license.”

Mr. Mitvol contends that BP’s local joint venture TNK-BP produced just a fraction of the nine billion cubic meters of gas it agreed to pump last year under the terms of the original license agreement signed in the 1990s. TNK-BP counters that its obligation was to meet local demand, which it is doing, and which is a tiny fraction of that amount.

Mr. Mitvol said the inspection would last several days and, if regulators determine that the obligations have not been met, the license could be pulled by the beginning of June. After the inspection, a commission comprising Rosprirodnadzor and the state subsoil agency would convene to make a formal decision. Mr. Mitvol suggested that would be a formality, taking just a few hours.

The check will be second this year after an initial inspection established the violations and gave TNK-BP three months to fix them. Meanwhile, the TNK-BP subsidiary developing Kovykta is awaiting a court opinion that would clarify its obligations under the license — a move that could potentially block any decision to revoke the license.

May 22, 2007 3:43 p.m.
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