TNK-BP to receive compensation if loses Kovykta field

March 12, 2010

neutral for TNK-BP's stock

News: Deputy Prime Minister Igor Sechin indicated that TNK-BP would receive compensation were it to lose the Kovykta gas condensate field. Russia's Federal Mineral Resources Agency is considering revoking RUSIA Petroleum's licence for the Kovykta gas condensate field. Natural Resources and Environment Minister Yuri Trutnev said in February that he believed RUSIA Petroleum was not complying with the terms of the Kovykta licence. RUSIA Petroleum is 63% owned by TNK-BP International (a non-traded entity), 25% by OGK 3 and 11% by the administration of the Irkutsk region.

Our View: Sechin's comments might signal that the Kovykta licence will not be revoked, but rather sold to one of the government companies. The Russian broadsheets speculated back in February that RUSIA Petroleum could sell the field to Rosneftegaz, Gazprom or another market participant. TNK-BP estimates the price of Kovykta at USD 900mn. If the Kovykta licence was not revoked but sold, that would be neutral for TNK-BP Holding, as the profit would be received by TNK-BP International (a non-traded entity).