BP to Lose $18 Billion Field Amid Russian Crackdown (Update1)
By Torrey Clark
June 1 (Bloomberg) -- BP Plc's Russian venture will probably lose its license to a Siberian field with enough natural gas to supply Asia for five years as President Vladimir Putin tightens control on the country's energy projects.
The Natural Resources Ministry's license-revocation commission should annul BP's permit for the $18 billion Kovykta field when it meets later today, Oleg Mitvol, the deputy head of the ministry's environmental inspectorate, said in Moscow. The preliminary minutes of the commission's meeting reflect a decision to revoke the license, Interfax said, citing a copy of the document.
The government of Russia, the world's biggest energy supplier, has used license and environmental audits to restore state dominance over the industry. Mitvol led the attack on Royal Dutch Shell Plc's $22 billion Sakhalin-2 venture last year, which ended when Shell ceded control to state-run OAO Gazprom.
``Unless the Kremlin offers a resolution that BP can spin as positive, this undermines our understanding of the new rules of the game in Russia,'' said Chris Weafer, the chief strategist at Alfa Bank, whose shareholders are among BP's partners in TNK-BP. ``It undermines BP's rationale, and that of any other foreign majors, for being in Russia -- adding oil and gas reserves.''
The Natural Resources Ministry has threatened to revoke the license to Kovykta, held by TNK-BP's OAO Rusia Petroleum unit, for more than four years. BP depends on Russia for a quarter of its production and 18 percent of its proven oil and gas reserves, while projects such as Kovykta promise future growth.
Hayward, Miller
BP Chief Executive Officer Tony Hayward failed to convince Gazprom Chief Executive Officer Alexei Miller to join the Kovykta project when the two men met in Moscow yesterday, the newspaper Vedomosti reported today, citing unidentified Gazprom officials.
``If we look at the situation from the legal point of view, there's only one resolution,'' Mitvol said in an interview in Moscow yesterday. ``The company loses its license.''
TNK-BP's unit violated the license requirements at Kovykta by failing to supply 9 billion cubic meters of gas to the Irkutsk region, Mitvol said after the last review of Kovykta was completed May 25.
The Czech Republic, with a population of 10 million, or more than three times that of the Irkutsk region, consumes about 9 billion cubic meters of gas a year.
TNK-BP has defended the license, saying the terms require only that it meet the gas demand in Irkutsk. The company asked at least twice to have the government's 9 billion-cubic-meter estimate lowered, saying it's based on an unfulfilled plan to increase gas use in the region, where current demand is no more than 2.5 billion cubic meters a year.
TNK-BP has invested about $500 million in the project, which may cost $18 billion to develop. TNK-BP has sought Gazprom's support to build a pipeline to ship gas to China and Korea, a market that Gazprom is planning to supply itself.
The government's dismantling of OAO Yukos Oil Co., once Russia's largest oil producer, allowed state-run OAO Rosneft to boost output to almost 2 million barrels a day and become the country's biggest crude supplier.
June 1 (Bloomberg) -- BP Plc's Russian venture will probably lose its license to a Siberian field with enough natural gas to supply Asia for five years as President Vladimir Putin tightens control on the country's energy projects.
The Natural Resources Ministry's license-revocation commission should annul BP's permit for the $18 billion Kovykta field when it meets later today, Oleg Mitvol, the deputy head of the ministry's environmental inspectorate, said in Moscow. The preliminary minutes of the commission's meeting reflect a decision to revoke the license, Interfax said, citing a copy of the document.
The government of Russia, the world's biggest energy supplier, has used license and environmental audits to restore state dominance over the industry. Mitvol led the attack on Royal Dutch Shell Plc's $22 billion Sakhalin-2 venture last year, which ended when Shell ceded control to state-run OAO Gazprom.
``Unless the Kremlin offers a resolution that BP can spin as positive, this undermines our understanding of the new rules of the game in Russia,'' said Chris Weafer, the chief strategist at Alfa Bank, whose shareholders are among BP's partners in TNK-BP. ``It undermines BP's rationale, and that of any other foreign majors, for being in Russia -- adding oil and gas reserves.''
The Natural Resources Ministry has threatened to revoke the license to Kovykta, held by TNK-BP's OAO Rusia Petroleum unit, for more than four years. BP depends on Russia for a quarter of its production and 18 percent of its proven oil and gas reserves, while projects such as Kovykta promise future growth.
Hayward, Miller
BP Chief Executive Officer Tony Hayward failed to convince Gazprom Chief Executive Officer Alexei Miller to join the Kovykta project when the two men met in Moscow yesterday, the newspaper Vedomosti reported today, citing unidentified Gazprom officials.
``If we look at the situation from the legal point of view, there's only one resolution,'' Mitvol said in an interview in Moscow yesterday. ``The company loses its license.''
TNK-BP's unit violated the license requirements at Kovykta by failing to supply 9 billion cubic meters of gas to the Irkutsk region, Mitvol said after the last review of Kovykta was completed May 25.
The Czech Republic, with a population of 10 million, or more than three times that of the Irkutsk region, consumes about 9 billion cubic meters of gas a year.
TNK-BP has defended the license, saying the terms require only that it meet the gas demand in Irkutsk. The company asked at least twice to have the government's 9 billion-cubic-meter estimate lowered, saying it's based on an unfulfilled plan to increase gas use in the region, where current demand is no more than 2.5 billion cubic meters a year.
TNK-BP has invested about $500 million in the project, which may cost $18 billion to develop. TNK-BP has sought Gazprom's support to build a pipeline to ship gas to China and Korea, a market that Gazprom is planning to supply itself.
The government's dismantling of OAO Yukos Oil Co., once Russia's largest oil producer, allowed state-run OAO Rosneft to boost output to almost 2 million barrels a day and become the country's biggest crude supplier.