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The Wall Street Journal: BP Unveils New Russia Deal As Gazprom Buys Venture Stake

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June 23, 2007; Page A6

BP PLC’s Russian joint venture TNK-BP said it agreed to sell its controlling stake in a key Siberian natural-gas project to OAO Gazprom and also announced a $3 billion cooperation deal with the Russian gas monopoly.

The deal is the latest twist in Russia’s effort to increase control over strategic oil and natural-gas assets.

TNK-BP’s rights to develop the Kovykta gas project have been under threat since Russian regulators said last month they could pull the license because TNK-BP didn’t respect production quotas.

The deal comes after Royal Dutch Shell PLC and its partners earlier this year ceded control of their key Sakhalin II project to Gazprom after months of regulatory pressure.

Analysts have said the pressure is part of a well-rehearsed scenario that sees large foreign-owned projects coming under attack from Russian regulators before falling into the hands of state-owned Gazprom. Russia, though, has always denied the events were tied.

The agreement also underpins the complexity of oil politics in Russia. The country is unwinding deals signed in the 1990s, but still seeking the participation of foreign investors as minority partners in Russia and their help abroad.

Under the terms of the agreement signed by all parties, TNK-BP, a 50-50 joint venture between BP and Russian investors, agreed to sell Gazprom its 62.89% stake in Rusia Petroleum, the company that holds the license for the Kovykta gas field in east Siberia. It will also sell its 50% interest in East Siberian Gas Co., the company constructing the regional gasification project.

But BP and Gazprom appeared to disagree on how much would be paid for the deal.
In a statement to the London Stock Exchange, BP said Gazprom will pay between $700 million and $900 million for the acquisition. But Russian news agency Interfax cited Gazprom Deputy Chief Executive Alexander Medvedev as saying that it is prepared to pay $600 million to $800 million for the stake.

TNK-BP said a longer-term call option for the venture to buy a 25%-plus-one-share stake in Kovykta had also been agreed upon with Gazprom. This option could be exercised once a significant joint investment or asset swap has been agreed under the terms of Friday’s agreement.

Viktor Vekselberg, TNK-BP’s chief operating officer, said the option will expire within a year, Interfax reported.

“To stay in the monastery, first you have to leave and purify yourself, and then you can enter again,” Mr. Medvedev, the Gazprom deputy CEO, was quoted as saying about the deal on Interfax.

BP said the companies will also establish a joint team to identify strategic opportunities for investment both overseas and inside Russia.

“We will initially be looking for projects of at least $3 billion, but the potential for further growth could be very significant,” said BP Chief Executive Tony Hayward.

“This historic agreement lays the groundwork for powerful cooperation between BP, TNK-BP and Gazprom.”

–James Herron and Gregory White contributed to this article.

Write to Benoit Faucon at [email protected] and Geoffrey Smith at [email protected] and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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