BP’s Russian venture braced to lose licence

Russian regulators are set to discuss as early as Friday the withdrawal of the licence held by BP’s Russian venture to exploit the massive Kovykta natural gas field.

The long struggle over Kovykta appeared to be entering its final phase after a Siberian court said it did not have jurisdiction to hear a suit from TNK-BP challenging regulators’ claims that it was not producing enough gas from the field.

Russia’s natural resources ministry said on Monday it was “very likely” the licensing agency would discuss on June 1 whether to revoke the licence on the grounds that TNK-BP was not fulfilling its terms.

That would clear the way for a new tender for the field – one of Russia’s biggest with 2,000bn cubic metres of gas – widely expected to be won by Gazprom, Russia’s state-controlled natural gas monopoly. Analysts have seen the attack on Kovykta as part of a broader move to return Russia’s biggest oil and gas deposits to majority state ownership.

There is also widespread speculation in Moscow that the move on Kovykta is part of a broader effort to force the group of businessmen who make up the Russian side of the 50:50 TNK-BP joint venture to sell their stake to a state-controlled company.

Rusia Petroleum, the TNK-BP subsidiary that holds the Kovykta licence, said it would appeal.

But Oleg Mitvol, deputy head of Russia’s environmental watchdog, said he had completed a final check showing Kovykta was violating its licence terms and had handed a report to Rosnedra, the agency that must decide the fate of the licence.

Mr Mitvol last year led the campaign against Royal Dutch-Shell’s $22bn Sakhalin-2 venture, which ended in Shell selling control of the project to Gazprom.

TNK-BP said it regretted the court’s decision.

“Rusia [Petroleum] will appeal it and use every legal right to defend and retain the licence and we fully support the actions and plan of [Rusia’s] management,” the company said.

Regulators say Kovykta’s licence stipulates it should now be producing 9bn cubic metres of gas a year.

Production is only a fraction of that, but TNK-BP says demand in the Irkutsk region is far below that level. It is also unable to export gas to markets such as China or South Korea because Gazprom refuses to build an export pipeline.

Gazprom officials say TNK-BP has not concluded a sales contract for Kovykta gas with Asian customers, without which it is impossible to invest billions ofdollars into constructing a pipeline.

TNK-BP shares fell last week amid fears of worsening UK-Russian relations after Russia said it would not comply with UK requests to extradite Andrei Lugovoi, the leading suspect in last November’s murder of Alexander Litvinenko. But analysts said the Kovykta battle had raged for more than a year before the Litvinenko case began.

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