The Times: BP chief insists future is bright in Russia

June 9, 2007
Steve Hawkes in St Petersburg

Tony Hayward, the BP chief executive, will pledge the group’s commitment to Russia today in an attempt to defuse tensions over the $20 billion (£10 billion) Kovykta gas project.

Mr Hayward wants to use this weekend’s Economic Forum in St Petersburg, where he is making only his second significant public appearance since taking over last month, to emphasise the success that BP has enjoyed in Russia since forming a joint venture with TNK four years ago.

While formal talks with Vladimir Putin are not on the agenda, the BP chief executive is one of several business leaders who will meet the Russian President tonight after appearing at an energy round table with Jeroen van der Veer, his counterpart at Shell.

Mr Hayward’s comments will come despite a growing resignation within BP to the fact that its Russian business looks set to be muscled out of Kovykta, one of its biggest prospects in the country.

The Russian Ministry of Natural Resources is expected to announce within a matter of days whether it is revoking the licence held by TNK-BP at the Siberian field for a failure to meet mandatory production levels.

A source close to BP yesterday said: “They will feel very lucky if they get to keep anything at Kovykta.”

The ministry’s threat is widely seen by analysts as a thinly veiled attempt by the Kremlin to prise back a key asset and hand it to Gazprom, the state-controlled gas giant.

Mr Putin attacked TNK-BP this week for “doing nothing” at the field. His rare outburst sparked fresh fears about Russia’s attitude to Western investment and raised questions about BP’s future involvement in its burgeoning energy sector.

However, Mr Hayward will seek to ease the tension by insisting that BP still sees a bright future in Russia, reflecting a growing frustration within the business that Kovykta is overshadowing its achievements in the country.

Russia accounts for a quarter of BP’s global production of oil and gas, a fifth of its reserves around the world and a tenth of its profits.

The group has pocketed $6.9 billion of dividends alone from TNK-BP, almost as much as the $8 billion that it invested when the alliance was formed in 2003. Its biggest oilfield – Samotlor – still holds six billion barrels of crude.

Bob Dudley, the TNK-BP chief executive, signalled the group’s desire to refocus the City’s attention this week when he held a first conference call with analysts from the United States and Britain.

He said they had to remember that Kovykta was a field that contributed “no production, no reserves and no cash-flow” to TNK-BP. “It is simply an option for the future beyond 2014 and that is what it always has been.”

Christopher Granville, head of Trusted Sources, the emerging markets consultant, said: “Kovykta is a serious matter in terms of what the outcome may mean for Western firms looking to invest in Russia, but I think BP’s future is very rosy.

“It’s been phenomenally successful and it’s building on that success for the future.”

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article1907348.ece

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