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Lloyds List: Gazprom tightens grip on Russian energy sector

By Martyn Wingrove
Published: Jun 25, 2007

RUSSIA’S grip on the energy industry has tightened again after Gazprom effectively forced TNK-BP to sell its stake in the $20bn Kovykta gas project and associated trunk pipeline to Pacific markets, writes Martyn Wingrove.

Political pressure led the British oil major and Russian investors in TNK-BP to sell a 62.9% stake in Rusia Petroleum, which holds the licence for the gas project, and its 50% interest in the East Siberian Gas Co to the state-run group, which is monopolising the gas industry.

Gazprom has agreed to pay between $700m and $900m for the assets, which leaves TNK-BP with a hole in its investment portfolio, fewer rseerves and lower growth potential.

The move is seen as another push by the Kremlin to extend the state’s control over the nation’s energy industry after Shell and its Japanese partners were forced to relinquish control of the Sakhalin II project in eastern Russia to Gazprom six months ago.

Europe’s largest oil company BP and Gazprom have formed a strategic alliance that may leave the door open for TNK-BP to take a quarter of the equity in Kovykta at a later stage if the Russian group can get its hands on one of BP’s international projects.

The two companies have formed a team to identify strategic opportunities for investment inside Russia and outside the Kremlin’s control, said BP. ‘We will initially be looking for projects of at least $3bn, but the potential for further growth could be significant,‛’ said BP’s new chief executive Tony Hayward.

‘The agreement lays the ground for co-operation between BP, TNK-BP and Gazprom.’

He said the Russian affiliate had an option to buy a 25% stake in Kovykta once a significant joint investment or asset swap had been agreed with Gazprom‛.

It is thought BP has already invested $600m in Kovykta, which holds around 2trn cu m of gas resources and is 450 km from the city of Irkutsk.

‘TNK-BP has been unable to develop the field at the speed invisidged by the Russian government in the development plan and Gazprom wants more control of the upstream and gas infrastructure,’‛ said Kwaku Boakye-Adjei, an analyst with Edison Investment Research.

‘This deal is lower than the market value. It will hit their reserves at a time when oil companies value replacemement reserves more than cash, so its not an ideal situation.’‛

Mr Boakye-Adjei believes it could take a long time for BP and Gazprom to agree on which assets to use in a $3bn deal.

‘It is difficult to find assets that will interest Gazprom,’ he added. ‘BP is looking for reserves and Gazprom is looking for markets, but it is yet to invest outside of its sphere of influence, Europe, and is loath to give up upstream positions in Russia.’

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