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Financial Times: Exxon rejects fears Kremlin is ready to target its Russian assets

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

ExxonMobil yesterday brushed aside fears that it could be the next western energy company targeted in Russia’s efforts to reclaim control of its gas and oil industry. He warned that investment in the country would be jeopardised if the Kremlin did not honour contracts.

Speaking to the Financial Times on the day TNK-BP, BP’s 50 per cent Russian joint venture, agreed to cede its controlling stake in the vast Kovykta gasfield to Gazprom, Rex Tillerson, ExxonMobil chairman, made it clear he did not expect his company to meet a similar fate.

ExxonMobil’s Sakhalin-1 oil and gas project has been widely seen as the next potential target for the Kremlin’s attentions, following the moves on TNK-BP and on Royal Dutch Shell’s Sakhalin-2 project last year.

Sakhalin-1 is now the only foreign-run energy venture that does not fit the new paradigm of state control.

Gazprom said this week Exxon should be blocked from selling gas to China.

Mr Tillerson said Russia had moved past its phase of trying to regain control of 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.”

Future investment by Exxon would depend on that contract being honoured, he said. “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.”

TNK-BP yesterday agreed to sell its 62.9 per cent stake in Kovykta to Gazprom for $700m-$900m. Gazprom said the deal would be closed in 90 days.

BP, TNK-BP and Gazprom also signed a deal to create a $3bn joint venture for investments both in 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, which will be activated once joint investments are agreed on.

Alexander Medvedev, Gazprom deputy chief executive, told reporters yesterday the Kovykta gas could now be sold to China.

“One of the directions for supplies of gas from Kovykta could be China,” he said.

Analysts have said Gazprom will not want Exxon to compete with it in China and otherAsian markets.

Copyright The Financial Times Limited 2007

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