TNK-BP in the news in May 2006 | |||
Viktor Vekselberg Named the Price of Gazprom’s Access to Kovykta
Yesterday, at the meeting of shareholders of East Siberia Gas Company, representatives of the Irkutsk Region Administration, owner of a 50% stake in East Siberia Gas Company, voted against the agreement of the company with TNK SH Investment on taking a loan of 6.5 billion rubles for the construction of a Kovykta–Sayansk–Irkutsk gas pipeline. However, TNK-BP, owner of the other 50% stake in East Siberia Gas Company, assures that this decision of the regional administration will not thwart the region gasification program of the company, which competes with the alternative program of region gasification proposed by Gazprom. Viktor Vekselberg, Executive Director, Gas Development, TNK-BP, spoke with Natalia Grib, columnist of Kommersant, on how TNK-BP is going to resolve its long-running conflict with the gas monopoly.
— Gazprom uses using aggressive tactics and invents new reasons to preclude TNK-BP from starting gas production in the Kovykta field. Are you sure that the company will start gas production according to the plan?
— The situation on international gas markets and in the region shows that gas from the Kovykta field will ineluctably be in demand. We are sure that Gazprom will eventually understand the necessity of developing this field with us, which may take place a little bit later than we would like.
In fact, the plans of Gazprom to start development of the Kovykta field in 2015 do not differ much from our plans. According to optimistic forecasts, if today we start active implementation of the project of gas export to China, the sequence of necessary steps, from the agreement of Gazprom with China on the prices and terms of gas supply to the choice of gas transportation routes, will ultimately let us start export supplies of gas no sooner than 2012–2013. We have to admit that the schedule of Gazprom is not too far from our forecasts.
— However, Alexander Ananenkov, Deputy Chairman of the Management Committee of Gazprom, insists that the development of this field should not be started earlier than 2015. When TNK-BP is going to start industrial production of gas, before or after 2008?
— We are going to start the first supplies of gas in December 2006. During the first several years, the volume of gas production will remain at the level of just 1–1.5 billion cubic meters a year. However, gas production will grow up to 2.5 billion cubic meters a year by 2009 and 4 billion cubic meters a year by 2011. These figures represent the forecasted gas demand of the Irkutsk Region.
— Do you believe that TNK-BP will not lose the license for developing the Kovykta field in 2007? Are you taking measures not to lose it?
— Last year, we presented our long-range development program to the Ministry if Natural Resources and showed the scheduled production volumes. The Ministry had no critical remarks on this program. However, the license agreement says that TNK-BP has to produce 9 billion cubic meters of gas for the needs of the Irkutsk Region. We insist that the current gas demand of the region is not anywhere near this volume.
— How are you going to resolve this contradiction?
— We are not. The time for having fulfilled the conditions of the license expires in the end of this year, and the government will have formal grounds for raising claims against us. We will defend our position and offer the customers to take this volume, because the field is ready. All necessary works under the license agreement related to geological exploration, drilling, and putting the field on the balance are accomplished. However, the formal grounds for recalling the license remain.
— Given a formal pretext, will Gazprom be able to take advantage of the situation and simply expropriate the Kovykta field?
— Yes, but first, we will litigate. Second, what Gazprom will gain by recalling our license? In this case, the field will go into the non-licensed stock of fields and will be put up to a tender. I think it would be easier to negotiate and reach a mutually acceptable agreement than go through such a complicated way. There is another problem, however – a list of strategic reserves that is now being prepared by the government. Certainly, the Kovykta field may be included into this list and our licensed may be withdrawn.
— A year ago, instead of buying it, Gazprom actually expropriated the control stake of Northgas for free, and Itera will soon cede its control over the Beregovoe field, its main resource base, to the gas monopoly. Do you think that a similar scenario may be applied to the Kovykta field?
— Let me remind you that the situation with Northgas was different as initially Gazprom controlled the company. However, TNK-BP owes nothing to Gazprom. We are not going to make presents to anybody will not cede control over the Kovykta field to Gazprom for free. Nothing will come for free. We made a holding proposal to them. In any case, they will have to pay for a stake.
— What is the scheme you may propose?
— All profit will be accumulated at the level of a holding, which will pay dividends to the shareholders according to their participation. The holding will have four cost centers: companies for production, transportation, marketing, and gas chemistry. These companies will be separate legal entities and wholly-owned subsidiaries, which will work for fulfilling separate tasks within the holding. We proposed dividing the business so that TNK-BP will be engaged in production, because of its huge experience and knowledge on the geological structure of reservoirs in the Kovykta field. We have drilled a number of exploration wells in the field and know how to do this in this field. For this reason, upstream, or production, should go to TNK-BP. The second block, midstream, that is, everything related to pipeline transportation, should go to Gazprom, because it has much more experience in the transportation of gas. We have made them several proposals on the system of management and are going to sign a contract with Stroytransgaz, a long-standing partner of Gazprom for the construction of a Kovykta–Sayansk–Irkutsk gas pipeline. As for trade and marketing, we agree that the main negotiator with China will be Gazexport, which will become the gas-marketing agent and will subsequently sign a contract with the holding.
— What gas price formula will suit China?
— The reference price will be commensurable with or equal to the price of liquefied natural gas. This is the result of tough negotiations of Gazprom with China. This is very important for us, because the price of liquefied natural gas is linked to the basket of oil products on the world market, and the gas price will grow.
— BASF has negotiated the principle of gas trade through the joint venture Achimgaz, according to which the company will sell one of every four cubic meters of gas from the well at the European price minus transportation costs and three cubic meters at the price of the Federal Tariff Service for Siberia. At what price will you be selling gas to Gazprom?
— I am not familiar with the price formula of BASF. So far, we do not have any prices, we only have proposals on the structure of a holding.
— Are you ready to cede control over the project to Gazprom?
— According to our proposals, Gazprom will have 51% of the holding and TNK-BP will have 45%. TNK-BP will contribute to the holding its stake in RUSIA Petroleum (this company holds the license for developing the Kovykta field, and TNK-BP owns 62.89% of shares of the company – Kommersant) and other assets related to the Kovykta field. Gazprom will have to pay its share or contribute its assets. In particular, we propose that the gas monopoly should construct a pipeline in the eastern direction and contribute it to the holding.
— How much is your share?
— Well, it can easily be reckoned. We spent certain funds for the issue of RUSIA Petroleum shares, construction, and development of the field. Thus far, we have invested more than $500 million into this project. The actual price will be ascertained in negotiations that have not even begun.
— Gazprom, as far as I understand, does not really refuse your proposal on a holding, it simply ignores it. Is that right?
— Tough and delicate negotiations are underway. These negotiations may be invisible from outside, but they are carried on. They say that they will think about different aspects and ask questions on the Chinese and internal markets. They asked us: “If you want us to come along, make a proposal to us.” We have made such a proposal, but did not receive a response so far.
— Is the version of exchanging the Kovykta field for oil fields, which was discussed in December between Gazprom and John Brown, CEO, BP, totally irrelevant now?
— I never said anything like that. I am not talking about the alienation of our stake in Slavneft. I am only discussing the structure of the holding. That is all.
— In respect to your other gas asset – Rospan International, where the situation is similar to that with the Kovykta field, Gazprom has also adopted the wait-and-see attitude. In a situation with regular problems of gas transportation from the field, will TNK-BP participate in the sales of Arcticgas, subsidiary of YUKOS, which works in the same area as Rospan?
— Today, the shares of Arcticgas are arrested during the YUKOS bankruptcy proceedings. If the current administrator of this company decides to put this asset to a tender, we will definitely take part in the tender. We are interested in this asset and will try to acquire it, but only in a fair way with transparent rules.
Source: Kommersant