Financial Times: BP submits to Kremlin pressure and hands Kovykta to Gazprom

By Ed Crooks in London and Catherine Belton in Moscow
Published: June 23 2007 03:00 | Last updated: June 23 2007 03:00

BP yesterday became the latest western oil company to fall victim to the Kremlin’s campaign to claw back control of Russia’snatural resources.

TNK-BP, the company’s Russian joint venture, bowed to pressure and agreed to cede its controlling 62.9 per cent stake in the vast Siberian Kovykta gas field to Gazprom, for $700m-$900m (£350m-£450m).

The news came as the head of ExxonMobil warned in an FT interview that Russia would jeopardise future investment in the country if it failed to honour contracts with the US oil giant.

In giving way to Gazprom, BP has followed Royal Dutch Shell, which was last year also forced to concede a majority stake in its Sakhalin 2 gas and oil projectto Russia’s state controlled gas company.

BP, TNK-BP and Gazprom also signed a deal to create a $3bn joint venture for investments in both Russia and overseas. The agreement gives TNK-BP an option to buy a 25 per cent stake in the Kovykta project, at a fair market price, that will be activated once joint investments are agreed on. Tony Hayward, BP’s new chief executive, described the announcement as a “historic agreement”.

Yesterday’s announcement had been predicted since the Russian authorities started moves to strip the group led by TNK-BP of its licence to operate the Kovykta field. BP shares rose 4p, or 0.7 per cent, to 583.5p as investors welcomed the resolution.

The climbdown leaves ExxonMobil’s Sakhalin 1 project as the only remaining foreign-run energy venture that does not fit the new Kremlin paradigm of state control. It came under pressure this week when Gazprom said it should be blocked from selling gas to China.

In an interview with the Financial Times, Rex Tillerson, ExxonMobil’s chairman, said he believed Russia had moved through the phase of trying to regain control of its resources.

“They want foreign participation because they know there’s technology capability that they need access to, and there’s know-how that they need access to.”

He added that future investment by Exxon would depend on that contract being honoured. “As long as they say: ‘we don’t like that deal we signed back then, but we’ll honour it,’ that doesn’t stand in the way of our investments; we can proceed.”

Copyright The Financial Times Limited 2007

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