- The Washington Times - Friday, June 1, 2007

MOSCOW (AP) — Regulators postponed a decision yesterday on revoking the license of BP PLC’s Russian joint venture for a giant gas field, just days before President Vladimir Putin heads into a Group of Eight summit amid grumbles about the Kremlin using energy as a political weapon.

Before the meeting that could have seen the license for the Kovykta field pulled, the deputy head of Russia’s environmental watchdog, Oleg Mitvol, said BP was likely to lose authorization to develop the 2.1 trillion-cubic-meter field.

But Alexander Shadrin, a spokesman for TNK-BP, the company’s Russian joint venture, said the decision had been postponed for two weeks.

That would put any move beyond the end of next week’s summit of the G-8 nations in Heiligendamm, Germany. Russia is to host a showcase economic forum in St. Petersburg next weekend.

Mr. Mitvol said BP has been underproducing at the Kovykta field and should therefore lose the rights to develop it. Yesterday he cited draft minutes for the meeting, which recommended that BP’s permit be pulled for failing to meet a production target of 9 billion cubic meters per year.

BP has countered that it was only meant to meet local demand, which is far lower. Shares in the oil company rose 0.53 percent to $11.22 yesterday in London.

Meanwhile, the opportunity to export gas to China, which would spur development of the field, has been blocked by state gas monopoly OAO Gazprom — the only company allowed by law to export Russia’s gas.

The meeting was scheduled against a backdrop of rising state control in the oil and gas industry: In December, Gazprom took control of the Sakhalin-2 liquefied natural gas development on the Pacific Coast, elbowing Royal Dutch Shell PLC into a minority position amid a series of environmental checks.

Investors are watching for a decision at Kovykta intently: A deal similar to Sakhalin-2, where BP retains a stake, albeit a minority one, would be palatable, they say. However, were BP to lose the license with no compensation, the investment climate would take a beating.

“There’s no way that any strategic assets such as Kovykta will stay in the ownership of a foreign company. The fact they will lose control is a given,” said Chris Weafer, chief strategist at Alfa Bank in Moscow.

“The worst-case scenario is that they get kicked out … then we’ll have the whole uncertainty factor back again that would be bad for the investment climate and bad for assets.”

A back-taxes campaign against the Yukos oil company and a parallel criminal case against its founder, Mikhail Khodorkovsky, hammered investor confidence in Russia; foreign funds lost billions as the company’s value evaporated.

But investors quickly forgot their jitters in the face of surging oil prices. Foreign oil companies are now clamoring to make deals with Rosneft and Gazprom, viewed as the state’s gatekeepers to Russia’s energy riches.

The Kovykta field, in the north of Siberia’s Irkutsk region, contains enough gas to supply the 27-nation European Union for more than four years at 2005 levels, according to BP’s statistical review.

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