The deal to buy the Kovykta field is close to collapsing

Negotiations between TNK-BP and Gazprom on the sale of the Kovykta gas condensate field have been suspended, the sides failed to agree on price and payment schedule. The deal, once valued at 700 to 900 million dollars, is being revised.

Negotiations between TNK-BP and Gazprom over the purchase of the Kovykta gas condensate field have been halted. According to analysts, the main reason is that the parties could not agree on the price and the payment schedule. Before the crisis, the value of the deal, which was supposed to close at the end of 2008, was estimated at $700-900 million. But already in December, Gazprom Deputy Chairman of the Management Committee Alexander Medvedev said that the deal’s value needed to be revised in light of the new market situation.
The Kovykta gas condensate field is one of the largest in Russia. Its approved C1 + C2 reserves amount to about 2 trillion cubic meters.
Initially, TNK-BP management did not plan to sell its stake to Gazprom, and agreed to do so only after the company faced the threat of losing its license for Kovykta.
According to a Rosprirodnadzor inspection, RUSIA Petroleum produced only 33.8 million cubic meters of gas annually at Kovykta, whereas under the terms of the license it was supposed to produce 9 billion cubic meters. TNK-BP explains this discrepancy by saying that production is being held back by the lack of transport capacity: Gazprom refuses to accept Kovykta gas for export, and there is no demand for such volumes in the Irkutsk region.
Rosprirodnadzor recommended that Rosnedra strip the company of its license in the summer of 2007, and the sale of the stake in RUSIA Petroleum to Gazprom was immediately announced. A repeat inspection in October 2008 revealed the same violations.
According to Denis Borisov, an analyst at Solid Investment Company, Gazprom benefits from delaying the deal: the monopoly currently has no extra money for Kovykta. In addition, according to the Eastern Gas Program, development of Kovykta is scheduled for 2017, and Gazprom is not eager to accelerate its development.