RusEnergy

22 June 2007 - Upstream OnLine - Gazprom chairman Dmitry Medvedev will host a meeting with BP at the Kremlin today for what one executive said would be the announcement of Gazprom's purchase of the Kovykta gas field. "Do not miss this meeting," the executive, who was familiar with the negotiations between the companies, told Reuters. The 1230 GMT meeting is the culmination of years of pressure from Gazprom on BP's Russian joint venture TNK-BP, which has long wanted to develop the huge field but has seen its plans blocked by the gas monopoly, which has other plans. A source familiar with the situation told the news agency that representatives from TNK-BP and BP would be present, but not BP boss Tony Hayward. TNK-BP has said it was willing to cede control of the field to Gazprom, at a price. TNK-BP has 62.7% of Kovykta, while minority stakes are held by Russia's Interros investment company and the local government in East Siberia's Irkutsk region. "What we're talking about is a cash consideration," said the executive, who declined to be identified. "This is a bilateral thing. The other stakes have to be dealt with separately." Earlier today, the Wall Street Journal cited unnamed sources as saying Gazprom would pay close to $1 billion, but the executive familiar with negotiations told Reuters that figure "may or may not be accurate". He also declined to say whether TNK-BP might later be invited back into Kovykta as a minority shareholder, adding that there was "some nuance" over whether it would be BP or TNK-BP. Gazprom is interested in Kovykta as part of a wider deal, which the Wall Street Journal said would involve launching negotiations on a $3 billion global joint venture with BP, involving projects in Russia and elsewhere, with each side contributing assets valued at $1.5 billion. The executive familiar with the negotiations said the companies were very likely to announce broad international co-operation but very unlikely to mention any specific assets. "Assets have not been identified," he said. BP's agreement to sell its control in the field has been widely compared to Shell's decision to cede control of the Sakhalin 2 venture to Gazprom late last year. Both sets of negotiations were held behind closed doors amid threats from Russia's Natural Resources Ministry and against the background of rapidly growing state control over energy assets. The ministry's licensing agency has threatened to strip Kovykta's operating company Rusia Petroleum of its licence, although the deadline for a decision has been repeatedly pushed back as talks between the firms got closer and closer to a deal. The agency's complaint that Rusia Petroleum was not producing enough gas has been widely interpreted as the latest Kremlin tactic to regain state control over hydrocarbon assets. "Sentiment continues to be geared towards making a negative out of BP's Russian travails, and this latest item will not help that current situation," said Citigroup oil and gas analyst James Neale in written research. "However, we would argue that BP continues to look at realistic ways to convert its Russian asset base into cash, and longer term strategic options. In the realpolitik of Russian hydrocarbon extraction, it is hard to see how this would be possible without a Russian state sponsor." The executive familiar with the Kovykta negotiations said in the larger context the deal was very good for BP. "This is very much not BP being backed into the corner, forced to capitulate on something and then put on a smiley face at a press conference and say 'yes, we're happy, thankyou for screwing us'," he told Reuters. Analysts have valued TNK-BP's interest in Kovykta at $2 billion to $3.6 billion, based on the field's gas being sold on local markets. It would be worth much more if TNK-BP had the right to export the gas to higher value markets abroad.