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Investors Chronicle: Nervous roulette for resources investors in Russia

Created: 1 August 2007 Updated: 2 August 2007
Written by: Daniel O’Sullivan & Alastair Ford

Only last week, JKX Oil & Gas chief executive Paul Davies was extolling the virtues of his latest Russian acquisition. One of the best things about it, he said, was that the licence for the gasfield in question was newly issued, and was therefore ‘clean’ and free of any of the irregularities that can dog Russian asset deals. Yet this week, the owner of the field was nevertheless named on a new list of oil and gas enterprises being investigated by Russian state natural resources regulator Rosprirodnadzor over compliance with licence conditions.

Such investigations have presaged recent state-led asset expropriations from both Shell and BP in Russia, and this time around London-listed companies under scrutiny also include subsidiaries of BP joint venture TNK-BP, Imperial Energy and Aim-quoted Urals Energy and Timan Oil & Gas.

JKX won’t comment on the investigation, but market sources say that the Rosprirodnadzor investigation is no more than a box-ticking exercise, perhaps spurred by the current political tit-for-tat between Britain and Russia.

The head of Rosprirodnadzor, Oleg Mitvol, has criticised some smaller UK-quoted companies in the past, most notably in recent months Imperial Energy and Peter Hambro, but with minimal impact. Dark rumours of conspiracy have resulted from Mr Mitvol’s actions, but broker Aton argues that: “in Russia, when choosing between conspiracy and petty selfish interests, always pick the latter”. Mr Mitvol himself is widely known for his love of show-boating, but his agency, though influential, doesn’t have the authority to revoke licenses.

Where he’s succeeded in separating companies from their assets, it’s usually been with the backing of powerful vested interests with a specific and clear motive. In most cases, those conditions haven’t applied, hence his limited success to date. But if he’s acting on Mr Putin’s orders in order to pile diplomatic pressure on the British, then the risk may be significant.

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