We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Wed 27 Jun 2007 09:31 AM

Font Size

- Aa +

Talk of cooperation, signs of trouble

BP is playing along in the tricky Russian energy market, says Stuart Matthews.

BP and Gazprom may enter into a strategic alliance aimed at international energy investment, if the companies follow up on the memorandum of understanding (MoU) signed recently.

According to a statement from BP, the potential agreement, which BP is sharing with its Russian subsidiary TNK-BP, is designed to make Gazprom's more outward looking while deepening BP and TNK-BP involvement in Russian oil and gas.

"We will initially be looking for projects of at least $3 billion, but the potential for further growth could be very significant," said BP chief executive Tony Hayward. "This historic agreement lays the ground for powerful co-operation between BP, TNK-BP and Gazprom."

Of interest is the price BP is willing to pay for this opportunity, in a market where other companies have suffered at the hands of Russia's state-owned interests. The agreement will see TNK-BP sell Gazprom its 62% stake in Rusia Petroleum, the company that holds the licence for the Kovykta gas field in East Siberia. It will also sell its 50% interest in East Siberian Gas Company (ESGCo), the company constructing the regional gasification project. BP's statement indicates that Gazprom will pay between US $700-$900 million for the two stakes, a price regarded by many as too cheap.

Speaking at an investment conference in Moscow a few days before the announcement, Hayward had made reference to ‘bumps in the road' when referring to BP's activity in Russia.

"The speculation over Kovykta is certainly not ideal, but we understand the importance of strategic assets and I consider this issue to be no more than one of those bumps in the road, which, as I said a moment ago, we all have to navigate occasionally," said Hayward .

The deal with Gazprom may well have been the company's best option for ending speculation, but most commentators have seen it as a face-saving move that lets it keep some interest in the region.

Arabian Business: why we're going behind a paywall

For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Real news, real analysis and real insight have real value – especially at a time like this. Unlimited access ArabianBusiness.com can be unlocked for as little as $4.75 per month. Click here for more details.