Kovykta Talks in Final Stage, Gazprom Says

21.04.2008 (17:38) | RBC

Russian gas giant Gazprom will close the acquisition of the Kovykta gas condensate field from TNK-BP before the end of April, Gazprom CEO Alexei Miller said yesterday.

Gazprom has already received Deutsche Bank’s approval to borrow over $1 billion to finance the transaction, RBC Daily has learned. This is close to the upper end of the price range discussed by the two companies for almost a year now, with TNK-BP seeming to gain the upper hand, experts say.

Gazprom and Deutsche Bank discussed the possibility of a loan for the gas company to buy TNK-BP’s stake in the Kovykta project, a source in Gazprom told RBC Daily. Earlier this week, Gazprom reported that Alexei Miller and Deutsche Bank CEO Joseph Ackermann had met in Moscow to discuss cooperation opportunities, including consultations on corporate financing, mergers and acquisitions and the acquisition of assets in Russia and abroad.

The bank has approved a loan of over $1 billion, according to the source. A top official in TNK-BP said the negotiations on the price were in their final stage. The price has not been determined yet, but it will include all capital investment made by the Kovykta project operator, RUSIA Petroleum, over the past 14 years of operation. Indeed, a price of $1 billion had been discussed, but it could have been raised, in view of the continuing weakening of the dollar and new investment in the project, the source noted.

Gazprom has made no official comments. TNK-BP’s spokesman confirmed that the talks were in the final stage but said he did not know about the final price. Deutsche Bank has not commented on the issue.

Alexander Nazarov, at IFC Metropol, said Gazprom had insisted on $700 million, while TNK-BP valued the stake at between $800 million and $1.2 billion. A loan of over $1 billion fits this price range. This is close to the upper end of the price range discussed by the two companies, experts say, interpreting it as a sign that TNK-BP’s negotiating position in Russia remained strong despite recent pressure from Russian authorities.

The completion of the Kovykta deal is very important for TNK-BP, according to analysts. The decision on the Kovykta issue could affect relations between Russia and the UK, but Russia’s new President Dmitry Medvedev is unlikely to worsen relations with London at the start of his career, Nazarov believes.

Sergei Yezhov, Deputy General Director of the Fuel and Energy Independent Institute, sees the Kovykta sale as a logical move. Gazprom, which has a monopoly on gas exports, is the only real bidder, he thinks. However, Gazprom could need partners to develop the expensive and complicated Kovykta project, inviting Chinese companies among others, Yezhov added.

Now, Gazprom and TNK-BP will focus on TNK-BP’s another gas company, Rospan. It produces 3.5 billion cubic meters of gas a year, expecting to bring its output to 17.5 billion by 2017. TNK-PB and Gazprom could agree on the sale of Rospan or the creation of a joint venture in future, Nazarov reckons.

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