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Trouble on the Russian front as BP offshoot faces loss of big gasfield

Times Online
February 17, 2010

TNK-BP, the Moscow subsidiary of BP, may be stripped of a huge Russian gas field

Robin Pagnamenta Energy Editor

BP was facing fresh troubles in Russia yesterday after the Government moved closer to stripping TNK-BP, its Moscow subsidiary, of one of the country’s biggest gasfields.

Officials from RosPrirodNadzor, Russia’s environmental agency, recommended yesterday that a licence held by TNK-BP for the Kovytka field in Eastern Siberia be revoked.

A final decision rests with Rosnedra, the Ministry for Natural Resources, which is responsible for issuing and monitoring oil and gas licences.

The Kovykta gasfield, which was discovered in 1987 and is situated 450 kilometres north of Irkutsk, has been the subject of a rumbling ownership dispute for years. In 2007, TNK-BP struck a deal to sell Kovykta — the largest gasfield in Eastern Siberia with two trillion cubic metres of gas and more than 83 million tons of gas condensate — for $1 billion to Gazprom, the Russian state-controlled gas monopoly. Since then, however, the deal has foundered over disagreements about the price.

Meanwhile, the Russian Government has repeatedly warned TNK-BP that it has failed to meet conditions set out in its licence — including bringing the field to full production.

Under the terms of the agreement, TNK-BP was required to produce nine billion cubic metres of gas annually. Current output is well below that level.

TNK-BP has argued that such a rapid increase in production is impossible unless it can develop pipelines and start exporting the gas to China — the nearest market for the gas. This is not feasible because Gazprom remains the monopoly exporter for Russian gas.

BP and its partners in TNK-BP, the AAR consortium of four Soviet-born billionaires, have warned that any move to revoke the licence would further undermine investor confidence in the country.

However, Kovytka is a strategic field, meaning that Gazprom could inherit it automatically if TNK-BP were to lose the licence.

TNK-BP and BP declined to comment yesterday on the decision from RosPrirodNadzor, which was reminiscent of the manouvering by Russian agencies that resulted in Shell losing control of its Sakhalin project in the Russian Far East in 2006.

Viktor Vekselberg, one of the four AAR billionaires, said last week that stripping TNK-BP of the rights to Kovykta was “clearly not supportive for the investment climate”.

TNK-BP said yesterday that it planned to invest $180 million (£115 million) in Venezuela’s oil-rich Orinoco region. The country’s Junin 6 field is believed to hold about 53 billion barrels of oil and is being developed by PDVSA, the Venezuelan national oil company, with a consortium of Russian groups including Gazprom, TNK-BP, Lukoil and Rosneft.


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