EDM: The Clock is Ticking on BP’s Kovykta Project

Vladimir Socor at Eurasia Daily Monitor publishes today about the ongoing harassment of BP by Russian environmental authorities at the massive Kovykta natural gas field in Irkutsk, Siberia. Just four years ago, BP plunked down $6 billion to help develop Kovykta, but now it looks as though Gazprom will be seeking up to a 74.4% stake in Rusia Petroleum, the subsidiary in question. From EDM:

Announcing the endgame phase, Mitvol already pronounced TNK-BP guilty of violating the terms of its license at Kovytka. The outcome of the case, he warned, “depends on the way in which TNK-BP will explain its violations” — apparently an oblique indication that the company risks a worse shakedown if it raises a fuss. Russian authorities plan to complete the investigation by March. The artificially created dispute centers on the company’s failure to launch commercial production at 9 billion cubic meters in 2006. Under the terms of the license, the project’s first phase was to have supplied that volume of gas to consumers in Irkutsk oblast, where Kovytka is situated. TNK-BP was ready to start production at that level in 2006, but — as it turned out — there was no demand for nearly that volume in Irkutsk oblast; and consequently, it made no sense to build a supply pipeline from the field. Accordingly, the company proposed changes to the license last year, but the Russian authorities turned down the proposals. … TNK-BP seems resigned to ceding its majority stake in Kovytka to Gazprom and is only negotiating about the price. Royal-Dutch Shell, the latest casualty of a Kremlin-driven forced cession to Gazprom, at its Sakhalin-2 project, seemed similarly reconciled after a very brief resistance. Shell president Jeroen van der Veer actually thanked Russian President Vladimir Putin when the ordeal was over last month, with Shell widely believed to have been short-changed by some $5 billion. Last week at the World Economic Forum in Davos, van der Veer appeared on a panel alongside Gazprom leaders and announced that Shell— “satisfied with Gazprom’s entry into the Sakhalin-2” — will continue seeking new investment opportunities in Russia. Apparently, putting the best face on a shakedown is one of Gazprom’s conditions thrown into such deals.