Identifier
Created
Classification
Origin
07MOSCOW3054
2007-06-23 07:11:00
CONFIDENTIAL
Embassy Moscow
Cable title:
GAZPROM TO BUY OUT TNK-BP IN KOVYKTA; COMPANIES TO
how-toVZCZCXRO3966 OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR DE RUEHMO #3054 1740711 ZNY CCCCC ZZH O 230711Z JUN 07 FM AMEMBASSY MOSCOW TO RUEHC/SECSTATE WASHDC IMMEDIATE 1531 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY RUEHBJ/AMEMBASSY BEIJING PRIORITY 4249 RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1118 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 003054
SIPDIS
SIPDIS
DEPT FOR EUR/RUS GREENSTEIN
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT/HEGBURG/EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR KLECHESKI AND MCKIBBON
E.O. 12958: DECL: 06/22/2027
TAGS: EPET ENRG ECON EINV PREL RS
SUBJECT: GAZPROM TO BUY OUT TNK-BP IN KOVYKTA; COMPANIES TO
WORK TOGETHER IN FUTURE
REF: MOSCOW 2975
Classified By: Acting Econ M/C Laura Lochman. Reasons 1.4 (b/d).
C O N F I D E N T I A L MOSCOW 003054
SIPDIS
SIPDIS
DEPT FOR EUR/RUS GREENSTEIN
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT/HEGBURG/EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR KLECHESKI AND MCKIBBON
E.O. 12958: DECL: 06/22/2027
TAGS: EPET ENRG ECON EINV PREL RS
SUBJECT: GAZPROM TO BUY OUT TNK-BP IN KOVYKTA; COMPANIES TO
WORK TOGETHER IN FUTURE
REF: MOSCOW 2975
Classified By: Acting Econ M/C Laura Lochman. Reasons 1.4 (b/d).
1. (SBU) TNK-BP and Gazprom announced a deal today on the
disposition of the Kovykta gas field in eastern Siberia.
Under the agreement, TNK-BP will sell the entirety of its
62.9 percent share to Gazprom for between $700 and $900
million, with the understanding that it may reenter the field
as a minority blocking partner (25 percent plus one share) in
the future, at an independently audited market price. As
part of the deal, BP, TNK-BP, and Gazprom will start
negotiations on forming a joint venture to pursue Russian and
global energy projects.
2. (SBU) TNK-BP sources tell us that the price tag is "fair."
Investment analysts have noted for some time that no Kovykta
reserves were ever booked by TNK-BP or BP and so the net
effect on the companies and share prices should be neutral,
or even positive given the cash inflow and the elimination of
a problem case for them. AlfaBank analyst Chris Weafer told
us on June 19 that the investment community was watching the
case closely and would probably view a fair price tag, a
reasonable structure for a retained role for TNK-BP, and a
deal roping Gazprom into global operating norms as a positive
development. Furthermore, given that Ronedra, the GOR's
subsoil licensing agency was planning to revoke the license
for Kovykta, TNK-BP may have very well ended up with a
non-performing field on its hands and the prospect of future
"violations" of regulations or laws. Currently the
expectation is that this agreement obviates a negative
decision on the part of Rosnedra regarding the license,
although no such decision had been made public at the time of
the announcement of the deal.
Comment
--------------
3. (C) TNK-BP points out that this is potentially the
beginning of a meaningful engagement with Gazprom globally.
The resolution of the Kovykta stand-off unlocks a major new
source of natural gas for world markets (East Siberia) given
its position as anchor for the GOR's recently approved $100
billion plan to develop the gas resources of the region. The
media seem to have accepted the focus of the deal's press
release on the benefits of future cooperation between
Gazprom, TNK-BP, and BP. We would echo investment analysts'
observation that the scale of exploration and development
upon which Russia is about to embark in the east should offer
enormous opportunities for U.S. firms that understand the
limits of what they can get here.
BURNS
SIPDIS
SIPDIS
DEPT FOR EUR/RUS GREENSTEIN
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT/HEGBURG/EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR KLECHESKI AND MCKIBBON
E.O. 12958: DECL: 06/22/2027
TAGS: EPET ENRG ECON EINV PREL RS
SUBJECT: GAZPROM TO BUY OUT TNK-BP IN KOVYKTA; COMPANIES TO
WORK TOGETHER IN FUTURE
REF: MOSCOW 2975
Classified By: Acting Econ M/C Laura Lochman. Reasons 1.4 (b/d).
1. (SBU) TNK-BP and Gazprom announced a deal today on the
disposition of the Kovykta gas field in eastern Siberia.
Under the agreement, TNK-BP will sell the entirety of its
62.9 percent share to Gazprom for between $700 and $900
million, with the understanding that it may reenter the field
as a minority blocking partner (25 percent plus one share) in
the future, at an independently audited market price. As
part of the deal, BP, TNK-BP, and Gazprom will start
negotiations on forming a joint venture to pursue Russian and
global energy projects.
2. (SBU) TNK-BP sources tell us that the price tag is "fair."
Investment analysts have noted for some time that no Kovykta
reserves were ever booked by TNK-BP or BP and so the net
effect on the companies and share prices should be neutral,
or even positive given the cash inflow and the elimination of
a problem case for them. AlfaBank analyst Chris Weafer told
us on June 19 that the investment community was watching the
case closely and would probably view a fair price tag, a
reasonable structure for a retained role for TNK-BP, and a
deal roping Gazprom into global operating norms as a positive
development. Furthermore, given that Ronedra, the GOR's
subsoil licensing agency was planning to revoke the license
for Kovykta, TNK-BP may have very well ended up with a
non-performing field on its hands and the prospect of future
"violations" of regulations or laws. Currently the
expectation is that this agreement obviates a negative
decision on the part of Rosnedra regarding the license,
although no such decision had been made public at the time of
the announcement of the deal.
Comment
--------------
3. (C) TNK-BP points out that this is potentially the
beginning of a meaningful engagement with Gazprom globally.
The resolution of the Kovykta stand-off unlocks a major new
source of natural gas for world markets (East Siberia) given
its position as anchor for the GOR's recently approved $100
billion plan to develop the gas resources of the region. The
media seem to have accepted the focus of the deal's press
release on the benefits of future cooperation between
Gazprom, TNK-BP, and BP. We would echo investment analysts'
observation that the scale of exploration and development
upon which Russia is about to embark in the east should offer
enormous opportunities for U.S. firms that understand the
limits of what they can get here.
BURNS