Russ Oil-Gas

11-16-2006 Bloomberg - By Lucian Kim - NIZHNEVARTOVSK, Khanty-Mansiisk Autonomous District -- TNK-BP agreed Wednesday to form a joint venture with Gazprom as it seeks better government relations amid a crackdown on foreign energy companies. TNK-BP and Gazprom's petrochemical unit Sibur Holding signed an agreement to refine so-called associated gas, which is extracted along with crude oil. The agreement may help TNK-BP, whose Russian shareholders include billionaires Viktor Vekselberg and Mikhail Fridman, smooth relations with Gazprom, which opposes the company's single-handed development of the $18 billion Kovykta gas field in eastern Siberia. "This is a good example of partnership between private and state companies," TNK-BP executive director German Khan said at the signing ceremony in Nizhnevartovsk. "We want to broaden our cooperation to other regions where our interests intersect." Gazprom will have 51 percent of the new company and TNK-BP 49 percent, though management control will be equal, Sibur president Alexander Dyukov said. Gazprom will contribute two refineries with a combined capacity to process 12 billion cubic meters per year. TNK-BP will provide the gas. The agreement will guarantee deliveries at stable prices for future growth, Dyukov said. The two companies may together invest as much as $500 million in the project over the next five years, Khan said. Dyukov declined to put a value on the new venture. State officials are using noncompliance with license agreements and environmental legislation to raise pressure on projects led by BP, Shell and Total, as the Kremlin seeks to turn state-run companies like Gazprom and Rosneft into global champions. Sibur is in talks on similar projects at TNK-BP's Nyagan and Orenburg fields, Dyukov said. The company is also considering ventures with LUKoil, Gazprom Neft and Rosneft. Many oil producers flare the natural gas that they extract along with crude, a process that is both environmentally damaging and wasteful. Russia is facing a gas crunch as it seeks to meet export contracts and the demands of a booming economy. TNK-BP, which pumps two-thirds of its crude in the Nizhnevartovsk area, produced 6.6 bcm of associated gas there last year, one-quarter of which was simply burned off into the atmosphere. By the end of 2008, the company wants to be using all of its associated gas. Gazprom deputy CEO Alexander Ananenkov said Wednesday on Sakhalin Island that Gazprom and Rosneft were completing talks on a "strategic partnership." BP already has a close relationship with Rosneft, having spent $1 billion buying Rosneft shares in the company's initial public offering in July.