BP has lost Kovykta, as expected, but come out of a deal with Gazprom better than it might have.
By Tom Nicholls
ANGLO-Russian oil major TNK-BP has sold the Kovykta gasfield to Gazprom, losing its long fight to hang onto the asset. Gazprom will pay $700-800 million for TNK-BP’s 63% stake in Rusia Petroleum, which holds the Kovykta licence. That will also include Rusia’s 50% in the East Siberian Gas Company, which is constructing gas pipelines near the field. As such, TNK-BP will receive something approaching a market price for its asset. Given that it had been facing the loss of the Kovykta licence for a contractual infringement and risked receiving nothing, this looks a reasonable outcome.
BP’s Tony Hawyard looks chuffed
Several other bonuses were rolled into the sale agreement. BP, TNK-BP and Gazprom have signed a memorandum of understanding to set up a strategic alliance to “invest jointly in major long-term energy projects or swap assets around the world”. Initially, they will look for projects worth “at least” $3 billion, but BP chief executive Tony Hayward says the potential for further growth is “very significant”. In addition, once that agreement is in place, TNK-BP will be entitled to buy back a 25% plus one share stake in Kovykta at “an independently verified price”.
The agreement – if Russia sticks to its side of the bargain – will probably open opportunities to BP inside Russia, as a partner of Gazprom, that would otherwise have been closed. Gazprom, meanwhile, may be able to accelerate its drive to buy downstream assets, mainly gas-supply infrastructure, outside Russia.
The Kremlin has long been determined to regain control of the 2 trillion cubic metre field. And Rusia’s failure to fill a contractual obligation to supply a large amount of gas to local markets gave it the leverage it needed to muscle TNK-BP out of the project. In reality, supplying the Irkutsk region with the stipulated 9 billion cubic metres a year would have been impossible – it could have accommodated around one-quarter of that only. But if BP once assumed that clause could be renegotiated, it misjudged the political mood in Russia, where a field the size of Kovykta cannot remain under state control. In the end, the clause proved a convenient device for renationalisation. TNK-BP’s Kovykta experience follows Shell’s lost battle to retain its production-sharing agreement on Sakhalin Island. Rumour is that the authorities will now turn their sights on the Sakhalin-1 project, operated by ExxonMobil. On past form, it doesn’t seem unlikely.