BP PLC's (BP) Russian oil joint venture TNK-BP Ltd. said Thursday the company operating the huge Kovykta gas condensate project in Siberia has filed for bankruptcy, as talks to sell the field to a state company drag out.
TNK-BP agreed in 2007 to sell the license for Kovykta, one of the biggest undeveloped gas fields in the world and of strategic importance to Russia, to state-controlled gas giant OAO Gazprom (GAZP.RS). TNK-BP has a 62.9% stake in Rusia Petroleum, the Kovykta field operator and license holder.
The deal with Gazprom was never completed, and the government has since repeatedly threatened to withdraw the license without compensation, as regulators said it wasn't meeting production targets.
Analysts believe the bankruptcy filing could pave the way for the sale to a state company, as it increases pressure on the government to decide the field's fate.
TNK-BP said in March it intends to sell its share to another state-owned company, Rosneftegaz, which owns 75% of oil giant OAO Rosneft (ROSN.RS), for up to $900 million and that the deal could be finalized by late this year.
TNK-BP is Russia's third-largest oil producer, half-owned by BP and the rest held by a group of Russian businessmen. It said it invested $664 million developing Kovykta, which contains approximately 2 trillion cubic meters of gas reserves.
"As the major shareholder and creditor of Rusia Petroleum, TNK-BP is determined to recover its investments and minimize its financial losses," the company said.
In a deal marking the biggest foreign investment into Russia, BP bought a 50% stake in the oil producer in 2003. But in 2008, the U.K. oil major became entangled in a fierce battle with its Russian billionaire partners for control of the company, causing serious damage to Russia's investment climate.
Fearing a repeat, senior government officials have in recent months stated their commitment to finding a reasonable solution to the problem.
Russia's energy czar, Deputy Prime Minister Igor Sechin, said in March that TNK-BP won't face a "vulgar expropriation" of its license and the final solution will be "fair."
The huge field is of strategic importance to Russia, as it plans to export gas from the field to China and other Southeast Asian countries. TNK-BP originally planned to send Kovykta's gas to Asia, but those plans were hampered when Gazprom became Russia's monopolist gas exporter.
Gazprom's decade-long plan to build a gas pipeline to China has yet to materialize, due to disagreements over pricing.
Analysts have speculated that differences within the Russian government over which state company should develop the field may be delaying the sale.
"TNK-BP probably wouldn't make such a move, if it wasn't certain there are potential buyers," said Troika Dialog's Valery Nesterov. "The big question now is who could be potential buyer for this asset."
Others believe the bankruptcy filing could speed up the process by putting pressure on the government to make a decision.
"Following the bankruptcy of Rusia Petroleum, we expect the Kovykta license to be reclaimed by TNK-BP in lieu of debts, which should simplify the negotiation process for its disposal and maximize the sales proceeds for TNK-BP," said Renaissance Capital analyst Alexander Burgansky.
TNK-BP declined to say whether the bankruptcy filing could move the case forward, but said it would "provide an opportunity" to recover its investments.