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Tuesday, May 29, 2007

TNK-BP Faces Loss of Kovytka

May 29, 2007 - Kommersant - Moscow - Deputy director of the Federal Resource Use Supervisory Service (Rosprirodnadzor) Oleg Mitvol sent a proposal to the Russian Mineral Use Agency (Rosnedra) yesterday for the license for the development of the Kovytka deposit to be withdrawn. License holder Rusia Petroleum, which is controlled by TNK-BP, tried unsuccessfully to prevent the agencies' action by filing suit against them in arbitration court in Irkutsk. The Irkutsk court ruled that the case was not within its competence. If the company does not file an appeal today, the license may be cancelled on Friday. Kovytka is one of the largest natural gas deposits in Russia. It has reserves of 1.5 trillion cu. m. Mitvol told Kommersant yesterday that a second inspection by Rosprirodnadzor revealed that continuing violations by Rusia Petroleum in the volume of its production. In January, Rosprirodnadzor established that 33.8 million cu. m. of gas had been produced at the deposit in 2006, while the license set a production level of 9 billion cu. m. per year. The company was given three months to remedy the situation. That deadline expired on May 20. Rusia Petroleum executives said that it was impossible to fulfill the requirements of the license. Both Rusia Petroleum and the government called the results of the second inspection “predictable.” TNK-BP lawyer Gennady Ratnikov said that the company sent Rosnedra two requests to review the conditions of its license and received no reply. TNK-BP was granted a license to develop Kovytka in 1993 and, according to the company, it has invested $800 million in the deposit. Rusia Petroleum intends to fight its delicensing further in court. Industry analysts say that the fate of the license depends on the negotiations between TNK-BP and Gazprom, which have been going on since last year. “If Gazprom becomes a Rusia Petroleum shareholder, the problem with licensing conditions can be solved,” MDM Bank analyst Nadezhda Kazakova stated. Another analyst called the situation a contest of nerves. The progress of negotiations between TNK-BP and Gazprom is unknown.

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