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Daily Telegraph: BP turns focus on Russian satellites

By Roland Gribben
Last Updated: 1:07am BST 31/07/2007

BP has set its sights on breaking into the Kazakhstan and Turkmenistan oil provinces after setbacks in Russia where a heavy tax bill is adding to its headaches.

Robert Dudley, chief executive of TNK-BP, the Anglo-Russian oil group 50pc owned by BP, is anxious to widen the BP portfolio in the former Soviet Union and make up for lost time.

The drive comes as Kazakhstan threatens a Russian-style renegotiation of a contract to develop its biggest oil field, accusing Eni, the Italian oil major heading the consortium developing the Kashagan field, of breaching contract terms. Shell, Exxon Mobil and Total are among the partners.

Russian intervention to renegotiate contracts has already seen Shell and BP lose their operating role in key Siberian gas developments to Gazprom, the state-owned monopoly. The Russian authorities cited the failure of the two companies to stick to contract terms to reduce their interests.

Eni has told the Kazakhstan authorities the production start-up date, originally set for 2005, will have to be delayed for a second time, to 2010, and the development cost will reach $136bn (£67bn) compared with an initial $57bn. The field, with estimated recoverable reserves of between 7bn and 9bn barrels, is one of the world’s biggest discoveries in 30 years.

Karim Masimov, the Kazakhstan prime minister, said: “I warn the company that we regard changes to the timetable for Kashagan as a change to the contract itself. Our actions will be appropriate.”

BP is one of the few western oil majors without a presence in Kazakhstan and concedes it has missed out on the most attractive prospects. Mr Dudley said: “We are not talking about anything like Kashagan. We can work in other parts, like onshore for example. There could be mature fields to help develop as we did in Russia. It would be a good start.”

He also wants to increase BP’s exposure in the Caspian Sea area to add to reserves and offset high Russian taxation. Russia, which has now overtaken Norway as the country with the highest level of oil taxes, accounts for 20pc of BP production but only 10pc of profits.

Mr Dudley said that while TNK-BP was increasing Russian investment for the fifth year in a row to between $4bn and $4.5bn this year it could become more difficult to persuade shareholders to approve higher capital spending. He said: “The profitability is squeezed and at some point it will begin to change people’s decisions.”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/31/cnbp131.xml

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