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BP under pressure on Kovykta

TNK-BP, the Anglo-Russian oil joint venture, is bracing itself for a full investigation within weeks into its licence agreement for a giant Siberian gasfield as the Kremlin tightens its grip on the country's energy resources.

Russia has used environmental audits and regulatory threats to restore state dominance over oil and gas supplies. This week saw Gazprom take a controlling stake in Royal Dutch Shell's Sakhalin-2 project after months of pressure.

People familiar with the situation said Gazprom's negotiations with TNK-BP were likely to follow a similar pattern to Shell's prolonged battle with state officials and the Russian gas monopoly.

TNK-BP has already offered Gazprom majority control over the Kovykta gasfield, but has insisted that Gazprom should pay for its stake with cash or assets.

Russian authorities have already stepped up pressure on TNK-BP, accusing it of breaking a licence agreement on production levels. The prospect of losing the licence for Kovykta is likely to soften TNK-BP's negotiating position.

Gazprom and TNK-BP have been talking about the joint development of the project for years but have not reached an agreement. Although TNK-BP has a licence to develop the field, expected to supply gas to Asian countries, it cannot do so without Gazprom agreeing to build an export pipeline for the field.

Gazprom, which has a mono-poly over the pipeline network and gas exports, has been stalling negotiations for months. It says it has other priorities.

A deal with Gazprom was required from the start, so BP's position is quite weak in any case, and now they are stuck because, as time has passed, the lack of agreement is making them breach their license.

So I think that this article is actually an attempt to pain the Russians as bullies in the Sakhalin context and try to give BP a bit more leverage. I doubt it'll work, though.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Dec 23rd, 2006 at 04:36:34 AM EST
[ Parent ]
    That's actually more a response to yesterday's Gazprom/Shell post, but still. Compare the two passages from FT article referred yesterday by Jerome:

The price paid by Gazprom for its control - 50 per cent plus one share - was much higher than many analysts expected. "It is a fair price and it should reduce the shouting about expropriation [of assets]," said Al Breach, chief strategist at UBS Russia.
    In return for gaining control in Sakhalin, Russia approved an increased budget for the project and effectively dropped a series of environmental complaints against it, suggesting these had been little more than an negotiating tactic.

and IHT:

The price Gazprom paid was "below market rate," Alex Kormshchikov, an oil and gas industry analyst at UralSib, said by telephone Thursday.

Analysts said the price valued Sakhalin 2 reserves at less than $4 a barrel of oil equivalent, a benchmark in valuing oil and gas deals, compared to an average of $4.90 a barrel at large Russian oil companies like Lukoil or Rosneft.

Still, Shell's chief executive, Jeroen van der Veer, said he welcomed the stability that an agreement implied, after a turbulent few months when a Russian regulator threatened to halt work on the pipeline, claiming illegal logging and damage to salmon streams.

So, FT emphasizes risk reduction, while IHT found an analyst looking at price only. Tell me more about selectivity in reporting!

by Sargon on Sat Dec 23rd, 2006 at 09:32:56 AM EST
[ Parent ]


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