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Daily Telegraph: BP-Gazprom gas field talks hit the rocks

By Russell Hotten, Industry Editor
Last Updated: 12:55am GMT 19/12/2007

Talks between energy giants Gazprom and BP about future ownership of a huge Russian gas field have broken down for a third time after the two sides again failed to agree a price for the project.

A meeting in Moscow between BP chief executive Tony Hayward and his Gazprom counterpart Alexei Miller failed to secure a breakthrough. No date for further high-level talks has been set.

In June BP’s joint venture in Russia, TNK-BP, agreed to sell its 62.4pc stake in the Kovykta gas field to Gazprom for up to $900m (£450m), as part of a wider deal between the UK and Russian companies to establish strategic alliances in energy projects.

But the June agreement expired on December 1, throwing into confusion not just the Kovykta sale but also plans by the two companies for long-term co-operation. “If that agreement is effectively dead, then the two will have to re-negotiate another one. It looks messy and painful, but not insurmountable,” said an energy analyst who has spoken to both companies.

The two companies are disputing how much TNK-BP has spent so far on developing Kovykta, which contains enough gas to satisfy the world’s needs for a year, but which is not due to come on stream for several years.

“The problem for BP is that it does not really want to sell, but is being forced to,” said an analyst yesterday. “BP is a forced seller because of Moscow politics.”

The Kremlin is taking key energy assets back into state control. BP hopes to continue operating in Russia, and could eventually return to Kovykta as a minority partner with Gazprom. “At the current moment, BP needs a dignified exit with as much money for its stake as possible,” the analyst said.

Last year Royal Dutch Shell was forced to give up its stake in the Sakhalin 2 gas project for a rock-bottom price after Gazprom disputed how much the company had spent on the project. Shell suffered months of threats that it would have its operating licence revoked because of alleged environmental breaches.

BP’s position is further complicated because its partners in TNK-BP, a group of Russian billionaire investors, can sell their holdings from January when a lock-in deal expires. Mr Miller has said previously that Gazprom could be interested in buying the TNK-BP stakes if they become available.

However, many analysts believe Gazprom will eventually buy the stake. A Moscow-based energy expert said: “BP’s partners in TNK are businessmen, not oil men. They have made good money, but at the moment the margins in Russian oil are not as good. They will sell. That just puts more pressure on BP.” and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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