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Sunday Telegraph: BP enters joint venture with Gazprom

Sunday Telegraph image

(The Kovykta field in eastern Siberia holds enough gas
to satisfy the world’s needs for a year)

By Russell Hotten
Last Updated: 2:13am BST 24/06/2007   
BP has been forced to cede control of the massive Kovykta gas field to Russia’s state-run energy giant Gazprom as part of an “historic agreement” that would allow the companies to swap international assets and jointly invest in projects around the world.

After months of Kremlin-inspired pressure, the UK oil major’s Russian joint venture, TNK-BP, has sold its 63pc stake in the company that operates the Kovykta field, which holds enough gas to satisfy the world’s needs for a year.

But there was confusion about the price, with BP saying that Gazprom will pay between $700 and $900m (£350m-£450m) “subject to adjustments” and the Russian company saying the stake is worth $600m-$800m. As part of this deal, TNK-BP is selling its 50pc interest in the East Siberian Gas Company to Gazprom.

The companies have also signed a memorandum of understanding (MoU) to form a strategic alliance and will appoint a joint team to target investment opportunities inside and outside Russia.

Tony Hayward, BP’s chief executive, said yesterday: “We will initially be looking for projects of at least $3bn, but the potential for further growth could be very significant. This historic agreement lays the ground for powerful co-operation between BP, TNK-BP, and Gazprom.”

TNK-BP has a call option to buy back 25pc of Kovykta at an independently-verified price. Whether TNK-BP exercises this option will depend on what other investments and assets swaps are agreed.

Analysts gave a mixed response. Andrew Neff, of Global Insight, said that as TNK-BP faced having the Kovykta operating licence revoked without compensation, any deal that involved payment and allowed the UK company to continue exploiting Russia’s resources was good news. “BP not only got a relatively market price for the asset, but also has opened up new growth opportunities for itself in Russia in partnering with Gazprom,” he said.

However, another analyst said: “We don’t know what price they [BP] are getting and they’ve only signed an MoU. This is not a done deal, and my guess is that there is still a long way to go, with the prospect of more political pressure put on BP.”

BP had invested $450m in the venture.

The Kremlin wants to claw back energy assets that it believes were sold off too cheaply to western companies in the 1990s. Last year Royal Dutch Shell was forced to relinquish control to Gazprom of the Sakhalin-2 gas project after months of allegations that the Anglo-Dutch company breached its licence. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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