The Cable Directory

BP PLC will continue to expand and explore new business opportunities in Russia despite the government’s threat to cancel its license in the giant Kovykta gas project.

BP remained unperturbed by concerns over growing risk in Russia, which through 50 percent-owned unit TNK-BP, contributes a fifth of its overall oil and gas reserves and a quarter of its annual production.

“Russia, like anywhere, has its risks. You only have to look at BP’s experience in the US over the last two years to understand that doing business anywhere in the world can be challenging from time to time. Russia is no different,” Tony Hayward, BP’s chief executive, said in a speech at a conference in Moscow.

BP will be in Russia for the long-haul, he said, describing the Kovykta issue as “one of those bumps in the road, which we all have to navigate occasionally.”

TNK-BP has a capital spending programme of US$3.4 billion in 2007. Part of the budget will be invested in the 35 new licenses it secured in 2006, he said.

The group is also working with Rosneft in another Russian joint venture Elvaryneftegas, which plans to drill two wells this year in the West Shmidt block, an unexplored region in the north of Sakhalin, added Hayward.

“BP’s aim is to continue to invest in Russia. We continue to make progress and… we are in this for the long haul,” he stressed.

BP is developing Kovykta through TNK-BP, which owns 62 percent of Rusia Petroleum, the field’s operator.

Russian regulator Rosnedra has threatened to withdraw the Kovykta license due to the developer’s failure to fulfil a commitment to ramp up the field’s oil output.

Discussions are ongoing between TNK-BP and Gazprom, Russia’s state-run gas monopoly, over the possibility of the latter getting a stake in the Kovykta project, a move seen by many analysts as a way of finally putting an end to the license dispute.

Russian press reports claimed BP is offering Gazprom access to the UK oil group’s assets overseas, including those located at the Gulf of Mexico, as part of a Kovykta deal. This will allow BP to keep a significant stake in Kovykta, rather than selling out its entire stake, according to reports

The Norwegian Storting (parliament) has approved the Statoil-operated North Sea Gjoa field’s plan for development and operation (PDO). “This is a day to be remembered,” says Tim Dodson, acting executive vice president for Exploration & Production Norway (EPN).

“We are very pleased that the development is finally approved. A review by the owners of the required approval terms and conditions remains however, particularly in light of the fact that the project is economically marginal. Realization of Gjoa’s reserves will give Statoil significantly increased production and returns.”

The Gjoa field will be developed with a floating production platform with plans calling for it to come on stream in 2010. Gas will be sent via the UK Flags pipeline to St Fergus in Scotland. Oil will be piped to the Troll II line and further to the Statoil-operated Mongstad refinery north of Bergen.

The project has been made robust through the choice of technical development solution and by tying back the Hydro-operated Vega and Vega South fields to Gjoa. Making the project profitable has been challenging. It has therefore taken a long time to arrive at the chosen development solution, which involves the Vega fields being tied back to Gjoa.

Gjoa’s main power requirements will be met from land. Plans call for this to be coordinated with electricity production from the Mongstad energy project’s (EVM) combined heat and power (CHP) station.

Research work is now in its final phase before final consideration by the Norwegian Water Resources and Energy Directorate (NVE). Plans call for the Statoil-operated CHP station to come on stream in 2010.

Gjoa lies in blocks 35/9 and 36/7 and was proven in 1989. Reserves are estimated at 82 million barrels of oil and 40 billion cubic Meters of gas. Total Gjoa investments are estimated at NOK 27 billion in 2006 money.

Gjoa licensees are Gaz de France (30%), Petoro (30%), Statoil (20%), Shell (12%) and RWE Dea (8%).

Gaz de France will be operator during the production phase. Gjoa operations are being planned with a logistics, supply and helicopter base at Floro, north of Mongstad. Gaz de France’s operations organization will be based in Stavanger.

Shell U.K. Limited and Esso Exploration and Production UK Limited plan to market their equity interests in a number of Northern North Sea assets. These assets include operated interests in Cormorant Alpha, Cormorant North, Tern, Eider, Kestrel and Pelican and non-operated interests in Otter and Hudson, as well as an operated interest in the associated oil evacuation system. Interests will include acreage, production licenses and associated infrastructure in Quadrants 210 and 211. The assets will be offered to the market on an open, competitive basis.

Both companies can also confirm that they are in negotiation with Fairfield Energy for the sale of their interests in the Dunlin cluster (Dunlin, Dunlin South West, Osprey and Merlin). Interests will include production licenses and associated infrastructure in Quadrant 211. The deal is subject to completion of a final Sales and Purchase Agreement and the fulfillment of a number of conditions, including Government consent and co-venturer approval.

Shell has also initiated the marketing of its interest in the Strathspey field (block 4/4a), a non-operated sub-sea oil and gas development tied back to the Ninian platform in the Northern North Sea.

Tom Botts, Executive Vice President, Shell Exploration & Production in Europe, said: “Active management of our assets is not new, and is a key part of Shell’s portfolio-based strategy. These are relatively high-cost assets within our European portfolio, where other operators might be better placed to add value. At Shell, we are committed to focus on where we can best use our people, capital and technologies, for competitive long-term returns, and on a global basis.”

“Shell remains committed to Europe and the North Sea as a core business area and holds a key strategic position in security of energy supply to the UK.”