EUROASIA: TNK-BP Being Kicked Off Rich Deposit

Rosnedra, the Federal Agency for Mineral Use, make cancel the license on one of the largest gas deposits in Russia – Kovykta, which is controlled by TNK-BP. The company has no more hope of stopping that action through the courts, and new BP head Tony Hayward made a last attempt to stop it through negotiations with Gazprom. Industry analysts are certain that TNK-BP will lose its license and think Gazprom may get it.

Rinat Gizatulin, press secretary of the Ministry of Natural Resources, told Kommersant yesterday that a Rosnedra commission will meet today to consider ending the right to use the Kovykta deposit early. The license for Kovykta is now held by TNK-BP-controlled Rusia Petroleum. TNK-BP tried to dispute the preliminary findings of an inspection of the deposit by Rosprirodnadzor, Federal Resource Use Supervisory Service, in court and provisionally prohibit the withdrawal of the license. The court refused to hear the company's suit, however. TNK-BP had a chance to file an appeal but, according to a source close to Rusia Petroleum, the company decided against an appeal in favor of disputing the final order to withdraw the license.

The co-owners of TNK-BP tried to resolve the problem by other means. The company has been in negotiations with Gazprom since last year over sharing Kovykta. Yesterday, Gazprom announced that its chairman Alexey Miller would meet with new BP head Tony Hayward. Officially, they discussed “questions of collaboration in the sphere of oil and gas” and the issue of Kovykta “was not raised.” Gazprom has not acknowledged participating in talks on Kovykta in recent months, although Kommersant source say that those talks are indeed going on. Yesterday a Gazprom source expressed its position concisely for the first time. “Gazprom will not intervene in the situation until the question of the license is decided on the level of government organs,” he explained.

The Kovykta gas condensate deposit, with reserves of 1.5 trillion cu .m., is located in Irkutsk Region. The main shareholders in OAO Rusia Petroleum, to which Kovykta is licensed, are TNK-BP (62.4%), the Interros holding (25.8%) and the Irkutsk Region committee on the management of state property (11.2%). Rosprirodnadzor made an inspection of observation of licensing terms at Kovykta in January and concluded that Rusia Petroleum was not observing the licensing agreement, which stipulated that 9 billion cu. m. of gas was to be produced in 2006. In reality, only 33 million cu. m. were produced. The company was given three months to remedy the violation and warned that its license might be cancelled. But the company is not able to produce that volume, and a second Rosprirodnadzor inspection at the end of May showed that the violations remained. The results of that inspection were turned over to Rosnedra. In theory, TNK-BP can still try to reach an agreement with state officials. The law “On Mineral Deposits” does not require Rosnedra to withdraw the license if the violations are not corrected, but it does provide the possibility to do so. The company could be given a new deadline for correcting the violations. Formally, the withdrawal of the license is the right of Rosnedra chairman Anatoly Ledovskykh. The decision is made based on the protocol from the commission meeting. The law does not specify the time limit for issuing the order to withdraw the license.

TNK-BP has a certain chance of disputing such an order in court and delaying the withdrawal of the license with provisional measures. But the company will have to act promptly. Last year, Rosnedra made the decision to withdraw two licenses for the continental shelf from Sintezneftegaz. In its appeal of that decision, the company asked the court to take provisional measures to prevent the deposits from being returned to the unallocated fund. As the court was examining the issue, Rosnedra announced that “all activities to stop the licenses have been undertaken,” that is, Sintezneftegaz was too late. In the end, the company won its suit against Rosnedra.

In spite of the possibility mentioned above, industry experts say that it is more likely that TNK-BP will lose the license for good. “The many months of negotiations between Gazprom and BP came to nothing,” Troika Dialog analyst Valery Nesterov pointed out. Nesterov has no doubts that the license will end up in the hands of Gazprom eventually. “The company's reserves in the ABC1 category are 25 billion cu. m., so the Kovykta reserves are almost 6-percent growth for Gazprom and that, of course, increases it value, even if the deposit is not developed,” Nesterov said.

Gazprom itself has not determined when it would be best to develop Kovykta. The general plan for the gasification of the Russian Federation by 2030 and the monopoly's Eastern Program through 2020 envisage starting that development in either 2012 or 2017. But Maxim Shein of BrokerCreditService mentioned that Irkutsk Region also has to undergo gasification. He mentioned the possibility that Gazprom might receive Kovykta in the immediate future for temporary use. The law “On Mineral Wealth” allows for the short-term use of deposits “in the interests of rational use.” It is not mandatory to hold an auction for that use. There have been precedents. In 2003, Surgutneftegaz received the temporary right to use the Talakan deposit, which had been taken away from YUKOS by the state. Then the license was made permanent.
Denis Rebrov, Natalia Grib



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