Asset for departure

TNK-BP sells Buguruslanneft

TNK-BP continues to sell oil production assets in Russia. As the head of the company, Robert Dudley, said last Friday at a meeting with the governor of the Orenburg region, Alexei Chernyshev, this time we are talking about a small enterprise in the Orenburg region, Buguruslanneft. This is already the fifth subsidiary in Russia that the British-Russian holding has put up for auction over the past year and a half. At the end of 2005, TNK-BP got rid of Saratovneftegaz, Orsk Oil Refinery, Orenburgnefteprodukt, and in the middle of last year it got rid of Udmurtneft with an annual production of 9.8 million tons of oil. The reason for the sale, according to Mr. Dudley, is the same as it was a year and a half ago: optimization of the property portfolio. “We are selling Buguruslanneft not in order to leave, but, on the contrary, to develop production, because in the future we plan to acquire other assets and licenses,” Interfax quotes him as saying. However, the company’s press service notes that it is too early to talk about specific terms of the deal. Now TNK-BP specialists are studying the possibilities of sale and testing market interest in this asset.

Buguruslanneft is one of the oldest enterprises in the Orenburg region. Several years ago, production there was about 2 million tons of oil per year. Then the management of Buguruslanneft talked a lot and in detail about plans to conduct additional geological exploration, introduce new technologies for enhancing oil recovery and other methods. Apparently, all these measures did not produce results: the company now produces approximately 700 thousand tons of oil per year - about 4% of the total oil production in the Orenburg region.

The management of TNK-BP has long been talking about stagnation in the development of its oil production sector. If two or three years ago TNK-BP demonstrated a confident growth in production by 6-8%, then last year the company was able to increase it only by 2%, to 73.2 million tons. Maintaining this level until 2009, as Mr. Dudley admitted on Friday, will be very difficult and costly. “TNK-BP in Russia has some of the most depleted assets. It will take six to seven years to bring into production the new fields that the company is currently developing. Thus, work on the Uvat project will begin in 2009,” explained the head of TNK-BP. New projects, which the head of the company proudly talks about, are very expensive for the company. The holding's overall investment plan for the next year has already been increased from 4 to 4.5 billion dollars, of which up to 70% will go to the development of existing fields. It is possible that this figure may further increase. TNK-BP is going to invest about $2.5 billion in the Uvat project alone, and these investments will pay off only by 2016.

TNK-BP is not going to follow the example of LUKOIL, which announced the transfer of unprofitable enterprises into a single company, which, on the one hand, will allow for effective management of such assets, and on the other hand, will be subject to zero mineral extraction tax. As Executive Vice President for Exploration and Production Sergei Brezitsky said a month ago, this approach does not allow the company to organize comprehensive work at the fields and in the regions. As a result, the holding sells low-profit assets.

However, the question remains open as to whether there will be demand for this asset, since previous buyers of TNK-BP’s unprofitable assets are bogged down in their own problems. Thus, Rosneft, which bought Udmurtneft in partnership with the Chinese Sinopec in the middle of last year, after acquiring the majority of YUKOS assets, became bogged down in debt (currently they exceed $25 billion, in addition, recently it became known that a new loan had been attracted by $3.5 billion). And it is unlikely that it will be interested in such a depleted asset as Buguruslanneft. The RussNeft company, the buyer of Saratovneftegaz, the Orsk Oil Refinery and Orenburgnefteprodukt, is already being sold to Oleg Deripaska’s Basic Element.

TNK-BP expects to receive $850-900 million from Gazprom for 62.9% of the shares of RUSIA Petroleum, which owns the license for the Kovykta gas condensate field, and 50% of the shares of the East Siberian Gas Company, said TNK-BP President Robert Dudley. “According to the latest agreement, the price under discussion is $850-900 million. The price agreement should take into account the cost history over the past 14 years,” he said. Earlier, Deputy Chairman of the Board of Gazprom Alexander Medvedev said that, according to the buyer, the price is 600-800 million dollars. And representatives of TNK-BP estimated the deal at 700-900 million dollars. TNK-BP will receive a buyout option of 25% plus one share in RUSIA Petroleum at market value for a period of one year. According to Mr. Dudley, the parties are now developing the terms for the implementation of TNK-BP's option on Kovykta, but the details have not yet been discussed. As part of creating a joint venture with Gazprom, the most logical thing for TNK-BP would be to enter into a project with ZAO Rospan. He also emphasized that the project on Sakhalin and Shtokman “will not be included in the joint venture for sure.” The head of TNK-BP added that perhaps in the near future the parties will begin discussing specific details on Kovykta, since a purchase and sale agreement is to be signed on October 1.

Anna GORSHKOVA