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Home / Issue Archive / 2007 / January #1 / BP to Turn Kovykta Over to Gazprom

№ 1 (January 2007)

BP to Turn Kovykta Over to Gazprom

British Petroleum announced it is ready to hand over the controlling share of Kovykta gas condensate field project to Gazprom. This news comes after Russian gas monopoly’s demand to give it a 75% interest in the field, which is estimated to possess over 2 trillion cubic meters of natural gas. TNK-BP failed to meet the gas extraction requirement of the license agreement, which was set at 9 billion cubic meters for 2007, as reported by the Finansovye Izvestia newspaper. TNK-BP is only capable of recovering up to 2.5 billion cubic meters per year, which is not enough to fulfill the obligation of covering Irkutsk region’s demand for gas.

Russian Government’s environmental protection agency Rosprirodnadzor set the deadline of may 2007 for RUSIA Petroleum, which currently holds the license for Kovykta gas field, to meet the conditions of the agreement, warning of a possible license revocation. 

Anglo-Russian joint venture TNK-BP owns 62.9 percent of RUSIA Petroleum’s shares, with Interros possessing 25.82 percent and Irkutsk region government in control of the other 10.78 percent. Kovyktinskoe gas field project is one of TNK-BP’s most lucrative interests in Russia. The gas condensate field, which was discovered in 1987, is located 450 km from Irkutsk, in the northern part of the Irkutsk Region, in the Zhigalovo and Kazachinsko-Lensk Districts. TNK-BP reports the reserves of the field amount to 2 trillion cubic meters of gas and more than 83 million tons of gas condensate. TNK-BP has been exploring the field by drilling both vertical and horizontal wells. In order to decrease the costs of gas production the company has been performing extended-reach drilling and other advanced technologies. According to the preplanned projections, 16 new wells were to be drilled in 2006-2008. 

Gazprom’s acquisition of the controlling share in Kovytka would mark another addition to the string of major energy projects brought back under control of state owned companies. Royal Dutch Shell and its Japanese partners were persuaded into selling their stakes in the Sakhalin-2 project to Gazprom. Finansovye Izvestia’s sources in Britain opine BP was put under pressure, and was cajoled into selling the controlling stake to Gazprom. However, experts admit that most deals sealed back in the 90s between the Government and foreign companies project were highly unfavorable for Russia. 

TNK-BP is expected to continue participating in the Kovytka project. The company’s President, Robert Dudley, expressed interest in "further cooperation with Gazprom" as, according to Finansovye Izvestia, despite losing the control over the gas condensate project, the company is still expected make solid profit from this cooperation.

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