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Thursday, March 16, 2006

TNK-BP and Gazprom to divide Kovykta

3/16/2006 - Analytical department of RIA RosBusinessConsulting - Viktor Vekselberg, executive director of the Russian-British oil company TNK-BP said on Tuesday that his company had offered Russia's gas giant Gazprom to buy a 51 percent stake in the operator of the Kovykta gas condensate project. The other 49 percent will be held by TNK-BP. Experts say this offer was expected, following long negotiations between the two companies. TNK-BP, eager to start production at Kovykta, is ready to make concessions, but analysts say it might in return seek Gazprom's part in its offshore projects or contracts with China. The Kovykta gas condensate field, in the east of the Irkutsk region, is the largest in Russia, its reserves estimated at 2.13 trillion cubic meters of gas, which is equivalent to China's entire probable reserves. According to preliminary estimates, these reserves will ensure annual production of up to 30 billion cubic meters of gas for local consumption for many years. The license for the Kovykta field is held by RUSIA Petroleum, controlled by ?N?-BP (62.89 percent), Interros (25.82 percent) and the State Property Committee of the Irkutsk region (10.78 percent). The project was expected to be launched back in the mid-1990s but this did not happen due to disagreements between the parties, especially over access to the trunk pipeline. A technical and economic feasibility study was written by Russia, China and Korea in 2003. Total investment in the project is expected to be between $15 billion and $18 billion. It might seem that this project must be of interest to Gazprom, but long negotiations produced little results, and the gas monopoly's officials have said recently that Kovykta was not among the company's priorities. But things seem to be changing, with TNK-BP executive director Viktor Vekselberg announcing on Tuesday that his company had offered Gazprom to buy a 51 percent stake in the Kovykta project operator. Vekselberg refused to comment on the price offered by TNK-BP for the stake. He said the Kovykta operator would include four companies, responsible for gas production, transportation, selling and processing. The owners of the project will have different stakes in them. TNK-BP wants RUSIA Petroleum to have a controlling stake in the gas producing company, and it is ready to offer Gazprom full control of the transportation division that will be responsible for the operation of regional and export pipelines. For the sales company the British-Russian group offers the same ownership structure as for the operator (51 to 49). And the gas processing division could be owned by third parties. Experts said TNK-BP's offer was no surprise. "It's long been rumored that TNK-BP is ready to let Gazprom into the Kovakta project. But it seems the gas monopoly has been seeking the best possible terms," says Mikhail Zak, chief analyst at Veles Capital investment consultants. As for TNK-BP, Kovykta is one of its most promising projects, and TNK, keen to start work, is ready to share control with Gazprom. "This proposal is not new. Gazprom's passive stand is understandable – time works for Gazprom. TNK-BP, fearing to lose license for the project, is making more and more interesting proposals to Gazprom," says Anton Rubtsov, at Rye, Man & Gor Securities. Gazprom is expected to accept TNK-BP's offer. "Gazprom will certainly agree to buy a stake in the Kovykta operator – that's what it is seeking. Anyway, Gazprom has to participate in the government's program for providing Siberia and the Far East with gas," Alexander Blokhin, an analyst with Antanta Capital, told RBC Daily. "TNK-BP has given in, but it is likely to ask for something in return. Perhaps, it will want Gazprom to take part in its offshore projects or energy programs in China," he said. Vekselberg confirmed on Tuesday that TNK-BP was considering the possibility of supplies to China.

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