Monday, June 7, 2010

BP’s Natural Gas Joint Venture in Russia Is in Bankruptcy $BP

BP’s Natural Gas Joint Venture in Russia Is in Bankruptcy

By ANDREW E. KRAMER
MOSCOW — The British oil giant BP conceded another setback Thursday in its struggle to recover hundreds of millions of dollars in investments from a venture to sell Russian natural gas to China.
Long before its fortunes dimmed with the oil spill gushing into the Gulf of Mexico, BP was embattled in Russia as the Kremlin wanted more control and a larger share of the profit from oil and natural gas extraction on its territory. The result was a major project mothballed — and now bankrupted.
Through its Russian joint venture TNK-BP, the British oil giant is a partial owner and a creditor in the company developing the Kovykta natural gas field in eastern Siberia, near China.
The venture embodied a long envisioned goal of Western investors to connect Russia’s energy riches with China’s insatiable demand; instead, that is a business that now appears will be dominated and closely controlled by Russian state companies.

BP’s purchase of the field in early 1990s looked prescient, before the project became bogged down in Russian energy politics. In 2003, BP combined its assets in Russia into a joint venture with local partners to form TNK-BP, and four years later they agreed to sell the Kovykta field to Gazprom.
TNK-BP had invested hundreds of millions of dollars in pipelines, wells and infrastructure moved into the middle of the Siberian wilderness for the development company, called RUSIA Petroleum. The project came to a halt and talks opened on a sale to Gazprom. Those dragged on until Thursday.
In a statement, TNK-BP said it called in loans to its subsidiary, initiating the bankruptcy filing in the court in Irtkutsk.
“As the major shareholder and creditor of RUSIA Petroleum, TNK-BP is determined to recover its investments and minimize its financial losses,” the statement said. The field contains about two trillion cubic meters of natural gas — the equivalent of three years of the entire United States’ consumption. But only a tiny volume of 47 million cubic meters is produced today.
For BP’s executives, the proximity to China, the fastest-growing market for natural gas, had made the field appear particularly valuable. TNK-BP had planned to build a pipeline directly south, toward China. But Russian regulators insisted on a northerly route to pass other, smaller gas fields that would otherwise be uneconomical to develop.
And they made clear that Gazprom, and not the BP joint venture, would decide when to build that pipeline. That left TNK-BP sitting on potentially enormous riches with virtually no market.
In the statement, TNK-BP said the Kovykta enterprise would not be able to repay the development costs, though left unstated the reasons. “The current financial situation precludes RUSIA Petroleum from timely repayment of its loans to TNK-BP Group,” it said.
TNK-BP owns 63 percent of RUSIA Petroleum, with the rest held by a Russian electrical company and the regional government of the Irkutsk region. Because TNK-BP is also a creditor, having financed development, it could emerge with a larger share after bankruptcy, Alexander Burgansky, an oil and gas analyst at Renaissance Capital said.
Still, TNK-BP has not reconsidered the sale, Mr. Burgansky said. Instead, the simpler ownership structure could ease negotiations with Gazprom, the only company likely to be interested given a prohibition on private gas exports from Russia passed into law three years ago.

1 comment:

  1. Dude. just want to say i like your blog a lot. Plenty of useful information to trawl through Keep up the good work.

    ReplyDelete