Robert Amsterdam

If the Kremlin's fleecing of BP at Kovykta were a film, you'd probably get up to leave about halfway through having recognized the hackneyed, boring plot borrowed from previous films, such as the Yukos affair and the great train robbery of Royal Dutch Shell at Sakhalin-2. The plot twists and cliffhangers simply fail to surprise us these days: Gazprom has repeatedly claimed it has no interest in Kovykta, and that the threat to strip TNK-BP's license has nothing to do with its interests!!! Is that true? Of course not. Will Tony Hayward fight for shareholders' interests, or be made to publically thank Putin just like Jeroen van der Veer of Shell? It's a no brainer that Hayward will not be afforded a chance to save face - he's already advocating for Russia's interests with a Schroeder-esque zeal.

An aerial view shows the production station of the Kovykta gas field in the Irkutsk region in eastern Siberia (Reuters)

And so the news today that BP has folded under regulatory pressure, and will pass majority control of the Kovykta project to Gazprom comes as no surprise to observers. But the truth is that BP has been dragged even closer into the Kremlin's embrace than could be imagined. With the surrender of this gas field, responsible for a staggering amount of BP's worldwide production plans for the future, the British company has also signed a memorandum of understanding with Gazprom for asset swaps across the the globe. To boot, the public statements from both sides following this sordid transaction could only generously be classified as "pure bollocks." (see bold below)

When I have more time later on, I will continue with an analysis of how this agreement illustrates the Kremlin's "sticky power." Stay tuned...

From the FT:

BP and Gazprom reach deal over Kovykta

By Ed Crooks in London and Catherine Belton in Moscow

Gazprom is to buy TNK-BP’s controlling stake in the vast Kovykta gas field in Siberia, a deal that cements state-controlled Gazprom’s control over the Russian gas sector and resolves a long-running stand-off with BP’s Russia venture.

BP and TNK-BP have also signed a memorandum of understanding on creating a strategic alliance with Gazprom for investing in long term strategic projects or asset swaps across the globe, BP said in a statement on Friday.

BP and Gazprom plan a wider international joint venture as part of the deal.

TNK-BP is to cede its 62.89 per cent holding in Kovykta to Gazprom, but has been given the option to buy a stake of 25 per cent plus one share in Rusia-Petroleum, the licence holder of the Kovykta field, at a market price, BP said. The option is to be activated once agreement is reached on international projects.

Gazprom is paying TNK-BP between $700m and $900m for the Kovykta stake and a half-share of a local company that is building gas infrastructure in eastern Siberia. The exact sum will be set in the next 90 days.

The pressure placed on BP over Kovykta is the latest move in Russia’s strategy of exerting more control over its natural resources, and using its leverage to help Gazprom.

However, BP sought on Friday to put a positive gloss on the news. ”This historic agreement lays the ground for powerful co-operation between BP, TNK-BP and Gazprom,” said Tony Hayward, BP chief executive. ”We will be initially looking for projects of at least $3 billion, but the potential for future growth could be very significant.”
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Talking about the field recently, Vladimir Putin, Russia’s president, indicated BP could retain a role in the Kovykta project:

He said the dispute over Kovykta was ”not about BP, not about the foreign partner, but about all the shareholders that took the obligations to develop this field, and unfortunately didn’t meet the licence terms”.