Identifier
Created
Classification
Origin
07MOSCOW2975
2007-06-20 03:10:00
CONFIDENTIAL
Embassy Moscow
Cable title:
KOVYKTA UPDATE: ENDGAME NEAR BUT DEAL LESS
how-toVZCZCXRO0148 OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR DE RUEHMO #2975 1710310 ZNY CCCCC ZZH O 200310Z JUN 07 FM AMEMBASSY MOSCOW TO RUEHC/SECSTATE WASHDC IMMEDIATE 1411 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY RUEHBJ/AMEMBASSY BEIJING PRIORITY 4248 RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1117 RHEHNSC/NSC WASHDC PRIORITY RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L MOSCOW 002975
SIPDIS
SIPDIS
DEPT FOR EUR/RUS
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT/HEGBURG/EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR KLECHESKI
E.O. 12958: DECL: 06/19/2027
TAGS: EPET ENRG ECON PREL PGOV RS
SUBJECT: KOVYKTA UPDATE: ENDGAME NEAR BUT DEAL LESS
FAVORABLE
REF: A. MOSCOW 2601
B. MOSCOW 2563
Classified By: Econ M/C Quanrud. Reasons 1.4 (b/d).
C O N F I D E N T I A L MOSCOW 002975
SIPDIS
SIPDIS
DEPT FOR EUR/RUS
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT/HEGBURG/EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR KLECHESKI
E.O. 12958: DECL: 06/19/2027
TAGS: EPET ENRG ECON PREL PGOV RS
SUBJECT: KOVYKTA UPDATE: ENDGAME NEAR BUT DEAL LESS
FAVORABLE
REF: A. MOSCOW 2601
B. MOSCOW 2563
Classified By: Econ M/C Quanrud. Reasons 1.4 (b/d).
1. (C) TNK-BP Vice President for International Affairs Shawn
McCormick (please protect) tells us that the deal being
negotiated between TNK-BP partners and Gazprom regarding the
Kovykta gas field (reftels) could be announced as early as
June 20. The final details are not yet worked out, but
according to the deal currently on the table TNK-BP would
retain 25 percent plus one share (i.e., a blocking minority)
and full operatorship might not fall to TNK-BP. As part of
the deal, Gazprom will also reportedly gain a significant
stake in BP assets elsewhere in the world.
2. (C) According to McCormick, the previous version of the
deal, which would have given TNK-BP 49 percent of Kovykta and
operatorship, fell apart over the weekend after being "90
percent done." Gazprom walked away from the table as talks
had gotten down to the final details of price and valuation
of other assets. When Gazprom later returned it laid down
these new terms, which TNK-BP appear to be ready to accept,
at least in part because BP CEO Tony Hayward is determined to
get the Kovykta deal behind him and move on to his more
global responsibilities.
3. (C) Comment. If true, and a Kovykta deal along the lines
described here is announced as early as tomorrow, it is hard
to predict how the investment community will react. At 25
plus one percent, TNK-BP would be settling for considerably
less than the 49 percent break point the current "rules" of
the energy game would dictate. At 25 percent, the price will
be very important -- the market will no doubt expect a
premium for that kind of sell-off. Much will also depend on
how BP's Hayward decides to sell the deal to his shareholders
and the public. At present, Kovykta is essentially a
non-performing asset, sidelined for more than a decade over
one controversy after another. Moving the field into the
active column will no doubt provoke a sigh of relief from
investors, as AlfaBank Chief Strategist Chris Weafer pointed
out it at an Amcham energy event on June 19. They may, in
the end, agree that 25 percent of something is better than 60
percent of nothing.
BURNS
SIPDIS
SIPDIS
DEPT FOR EUR/RUS
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT/HEGBURG/EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR KLECHESKI
E.O. 12958: DECL: 06/19/2027
TAGS: EPET ENRG ECON PREL PGOV RS
SUBJECT: KOVYKTA UPDATE: ENDGAME NEAR BUT DEAL LESS
FAVORABLE
REF: A. MOSCOW 2601
B. MOSCOW 2563
Classified By: Econ M/C Quanrud. Reasons 1.4 (b/d).
1. (C) TNK-BP Vice President for International Affairs Shawn
McCormick (please protect) tells us that the deal being
negotiated between TNK-BP partners and Gazprom regarding the
Kovykta gas field (reftels) could be announced as early as
June 20. The final details are not yet worked out, but
according to the deal currently on the table TNK-BP would
retain 25 percent plus one share (i.e., a blocking minority)
and full operatorship might not fall to TNK-BP. As part of
the deal, Gazprom will also reportedly gain a significant
stake in BP assets elsewhere in the world.
2. (C) According to McCormick, the previous version of the
deal, which would have given TNK-BP 49 percent of Kovykta and
operatorship, fell apart over the weekend after being "90
percent done." Gazprom walked away from the table as talks
had gotten down to the final details of price and valuation
of other assets. When Gazprom later returned it laid down
these new terms, which TNK-BP appear to be ready to accept,
at least in part because BP CEO Tony Hayward is determined to
get the Kovykta deal behind him and move on to his more
global responsibilities.
3. (C) Comment. If true, and a Kovykta deal along the lines
described here is announced as early as tomorrow, it is hard
to predict how the investment community will react. At 25
plus one percent, TNK-BP would be settling for considerably
less than the 49 percent break point the current "rules" of
the energy game would dictate. At 25 percent, the price will
be very important -- the market will no doubt expect a
premium for that kind of sell-off. Much will also depend on
how BP's Hayward decides to sell the deal to his shareholders
and the public. At present, Kovykta is essentially a
non-performing asset, sidelined for more than a decade over
one controversy after another. Moving the field into the
active column will no doubt provoke a sigh of relief from
investors, as AlfaBank Chief Strategist Chris Weafer pointed
out it at an Amcham energy event on June 19. They may, in
the end, agree that 25 percent of something is better than 60
percent of nothing.
BURNS