Tony Hayward, BP chief executive, has been to Russia four times this year.It is a country he cares about, and with good reason.
Last year TNK-BP, BP’s 50 per cent-owned Russian joint venture, contributed a quarter of the group’s total production and about a sixth of its reserves.
The resolution of the dispute over Kovykta, in which TNK-BP had been threatened with losing its licence to operate the field with no compensation, is welcome if for no other reason than that it ends some of the uncertainty over BP’s presence in Russia. Its shares rose modestly on Friday to reflect that.
“BP has got something out of this,” said Andrew Neff, of Global Insight, the analysis firm. “If Russia had gone ahead and revoked the licence, that would have sent a very negative signal about BP’s future in the country.”
The outcome looks similar to the settlement imposed on Royal Dutch Shell for its Sakhalin-2 project off Russia’s far east coast.
BP is likely to end up with a minority interest in Kovykta, and is being paid well below a fair market price. For 62.89 per cent of Kovykta plus half a small local gas infrastructure company, Gazprom is to pay $700m-$900m.
Based on the field’s potential to supply large volumes of gas for export to China starting in the middle of the next decade, that stake would be worth $3bn-plus, said Alex Turkeltaub, of Frontier Strategy Group. But those sales would always have required Gazprom’s co-operation, and gas that cannot be sold is worthless.
BP had not booked any of Kovykta’s reserves or production into its reported figures.
The significance of the $3bn-plus three-way joint venture between BP, TNK-BP and Gazprom is unclear. The companies must decide which assets to include and agree values for them, which is not easy.