BP’s Russian Unit Facing Environmental Audit

BP’s Russian unit will be audited by the most-senior environmental regulator this week and stands to lose its license to operate Eastern Siberia’s largest known natural-gas field if it fails. TNK-BP, a venture between BP and private Russian investors, will be audited May 23 on its production at the Kovytka field, where it has a contractual target, Russia’s Natural Resources Inspectorate said. Rusia Petroleum, a unit that is 62 percent owned by TNK-BP, produced 1.5 billion cubic meters from the field last year, compared with a target of 9 billion cubic meters.

“If they have not fulfilled their targets, it will be the end of the license,” Oleg Mitvol, deputy head of the inspectorate, said during an interview by telephone Sunday.

President Vladimir Putin is tightening state control over Russia’s energy resources, which he once described as “the holy of holies.” He wants to build up Gazprom and Rosneft, the state- controlled gas and oil companies, to compete with international energy companies like BP, Royal Dutch Shell and Exxon Mobil.

Mitvol last year alleged environmental irregularities by Royal Dutch Shell in the construction of the first liquefied natural gas plant in Russia. That contributed to Shell’s decision to sell a majority stake to Gazprom, the gas export monopoly.

BP, based in London and Europe’s second-largest oil company after Royal Dutch Shell, and Gazprom have been in talks about Kovytka’s future.

Lawyers for Rusia Petroleum have argued that the field cannot produce as much as its target because a planned export pipeline to China has not been built.

Marina Dracheva, a spokeswoman for TNK-BP, said that a judge in Irkutsk, the largest city near Kovytka, will review a Rusia Petroleum request for a “clarification of the company’s license obligations” on May 23.

“It will be up to the courts to decide whether Russia is in breach or not,” she said Sunday.

Mitvol said the court had no jurisdiction over the issue.

TNK-BP is the second-largest privately owned oil company in Russia, and much of its market value is based on Kovytka. Energy analysts have estimated the value of the field’s gas at $18 billion and the cost of its development, and the pipeline to China, at $15 billion.

Kovytka is estimated to hold two trillion cubic meters, or 71 trillion cubic feet, of gas, or enough for Russia to meet 25 years of planned exports. Gazprom has said it wants to export as much as 80 billion cubic meters of gas to China, from as early as 2011.

Should TNK-BP lose the Kovytka license, foreign-controlled companies will not be allowed to bid for it, Natural Resources Minister Yury Trutnev said in March.

(c) 2007 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.