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BP Could Lose $20 Billion to Gazprom

Seeking Alpha: BP Could Lose $20 Billion to Gazprom

by: Stephanie Grimmett: Bio & more articles
posted on: April 09, 2008

Gazprom is moving to take control of BP’s Russian oil fields.

Gazprom, Russia’s government-owned energy company, already had plans to buy a stake in British Petroleum’s Kovykta gas field. And now, with rumors circulating that BP (BP) is being bullied out of its Russian enterprise, Gazprom (OGZPY.PK) could be planning to buy a majority stake in TNK-BP, the joint venture between BP and four Russian billionaires.

The Russian government in general, and Gazprom in particular, has a history of forcing foreign oil and gas companies out of local fields through corporate and legal harassment and tax hikes. The government hasn’t gone so far as to say, “leave Russia to the Russians,” publicly, but you can imagine the sentiment being passed between cabinet ministers and police chiefs as they rifle through TNK-BP’s Moscow offices (which they did a couple of weeks ago).

Government officials accused a TNK-BP employee of industrial espionage to gain access to its corporate headquarters, and the company is currently under investigation for tax evasion and environmental violations. TNK-BP could very well be guilty of all three accusations, but so is every other corporation in Russia, where corruption runs rampant and bribery is sometimes the only way to receive legal approval.

BP owns 51% of its Russian joint venture, and TNK-BP contributes about a quarter to the company’s total yearly oil and natural gas production. Its stake is worth about $20 billion, as far as analysts can tell.

TNK-BP’s other owners, Russian billionaires Viktor Vekselberg, Len Blavatnik, Mikhail Fridman and German Khan, agreed not to sell their combined 50% stake in the company before 2008… No wonder Russia’s enforcement agencies just discovered an interest in TNK-BP’s legal dealings.

Convincing the Russian owners to sell shouldn’t be very hard for Gazprom. The company wields a lot of government clout (or maybe at this point I should say the government wields a lot of Gazprom clout), and any billionaire worth his Solikamsk salt (look it up) knows that staying on the good side of the Kremlin is more profitable than any minority stake in a foreign oil venture.

All that’s left is for Gazprom to wrench away 1% of BP’s portion of the company to gain majority control — that’s if its willing to give BP nearly half the profits.

Gazprom’s eventual goal could be to force BP out of the country altogether. But with global oil supplies growing scarce and harder to extract, the world’s third largest energy company will fight tooth and nail (or possibly hammer and sickle) to keep its hands on a healthy supply of oil and natural gas, even if it is on the other team’s home turf.

As I’ve said before, don’t bet against Gazprom. Even with the noble British Empire behind BP, I’d still stay on the Russian side of this potential fight.

Disclosure: None

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