BP’s Russian Gas Company Files for Bankruptcy (BP, XOM, RDS-A)

A Russian-traded company named RUSIA Petroleum, which is majority-owned by TNK-BP, filed for bankruptcy last week. TNK-BP is a joint venture between a Russian company and BP plc (NYSE: BP). TNK-BP had earlier filed an early repayment notice on RUSIA Petroleum to collect part of the loans issued to finance development of the Kovykta natural gas condensate field. Because RUSIA Petroleum cannot repay the loans, TNK-BP says it is “obligated to file a bankruptcy procedure with the court.”

BP’s history with the Kovykta field is not a happy one. In 2007, it was forced to sell its share of the field to Russia’s Gazprom as then-President Vladimir Putin sought to regain control of the country’s oil and gas assets. Exxon Mobil Corp. (NYSE: XOM) and

Royal Dutch Shell plc (NYSE: RDS-A) were also forced to return either assets or control in two projects at Sakhalin Island in the Bering Sea.

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BP’s dispute with the government centered on TNK-BP’s failure to meet production goals the company had agreed to for the Kovykta field. The failure, according to TNK-BP, resulted from the lack of a market for its production. The company had been prohibited from building a gas pipeline to China, which had been part of the original project, when Gazprom asserted its right to be the only supplier of Russian gas to foreign countries. At that point, BP had no choice but to sell its interests in Kovykta.

Gazprom now stands to pick up the assets of RUSIA Petroleum for much less than their real value, and BP is trying to maximize the amount of money it can recover by filing for bankruptcy. In 2007, TNK-BP agreed to sell its stake in Kovykta to Gazprom for $700-$900 million. Negotiations since then have gotten nowhere, and have now ended with the bankruptcy filing.

Gazprom, the only company allowed to export Russian gas, will have no more than token competition from other bidders at a bankruptcy auction. After all, why would any other company want to buy an asset it cannot sell.

This puts a period to BP’s long involvement in Russian gas, and comes at a time when the British energy giant can ill afford more bad news. The leaking well in the Gulf of Mexico has cut the company’s market value by more than 40% and by the time that all the bills arrive for the clean-up, BP may have to sell some of its assets to pay for the damage.


Article printed from InvestorPlace Media, https://investorplace.com/2010/06/bp-plc-crude-oil-natural-gas-russia-rusia-petroleum-tnk-bp-bankruptcy/.

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