Rejection of BP lawsuit opens way for Kovykta take

Alex Nicholson

Associated Press Business Writer

A Siberian court on May 28 threw out a lawsuit filed by the BP PLC’s local subsidiary over the amount of gas it produces, opening the way for regulators to pull the license to the company’s giant Kovykta gas field.

Analysts have called the case symptomatic of a broader drive by the Russian state to expand its influence in the oil and gas industry, predicting that the regulatory pressure will disperse as soon as a deal is sealed to allow state-controlled gas monopoly OAO Gazprom to take control of the project.

That would mirror Gazprom’s entry to the giant Sakhalin-2 liquefied natural gas development off Russia’s Pacific coast, where Royal Dutch Shell PLC was elbowed into a minority position.

Observers suggest a deal will also depend on BP’s Russian partners selling their stakes in TNK-BP to a state-controlled energy company such as Gazprom or oil company OAO Rosneft.

“We regret the negative decision of the court,” Marina Dracheva, a spokeswoman for TNK-BP, BP’s Russian joint venture, said May 28. The subsidiary developing the field “intends to appeal the decision and to use every legal right to defend and retain this license,” she said.

Russia’s environmental watchdog, Rosprirodnadzor, argues that TNK-BP has produced a tiny fraction of the 9 billion cubic meters of gas per year that it was due to pump from the 2.1 trillion-cubic-meter field under its license terms.

On May 28, Rosprirodnadzor deputy head Oleg Mitvol told The Associated Press that a final review of the field had been sent to the state agency responsible for subsoil usage, which will make a final decision on whether to revoke the license.

The Interfax news agency quoted an unnamed source at Rosprirodnadzor as saying that the subsoil agency would make a decision on June 1. Officials for the subsoil agency could not be contacted for comment, while Mitvol said he had not been notified of the date by the agency.

In its lawsuit, TNK-BP argued that it was obliged to meet only local demand, which has proven far lower than the original amount set out in the agreement. Meanwhile, the opportunity to export gas to China, which would spur development of the field, has so far been blocked by Gazprom — the only company allowed by law to export Russia’s gas.