Oil Companies Not Seen Impacted By UK-Russia Spat - Analysts

LONDON Jul 17, 2007 (Dow Jones Newswires)

British oil and gas companies are unlikely to be impacted by the diplomatic spat between Russia and the U.K., analysts said Tuesday.

They said that Russia's takeover of large projects has already taken place, while the Russian energy sector has come increasingly to depend on the U.K. financial sector and U.K. companies for its development abroad.

If the Russians wanted to take control of certin energy projects, "they already achieved that," said Aton Capital analyst Artyom Konchin.

Earlier this year, state-owned OAO Gazprom (GSPBEX.RS) took over the Sakhalin II venture, run by Anglo-Dutch Royal Dutch Shell PLC (RDSB.LN). And TNK-BP Holding (TNKP), controlled by the U.K.'s BP PLC (BP), agreed to sell its majority stake in the Kovykta gas project to the Russian gas giant last month.

BP is involved "in business, not politics" in Russia, a BP company spokeswoman said Monday in reaction to the tensions between Russia and the U.K.

Shell didn't return a request for comment.

The recent takeover of the BP and Shell-controlled projects by Gazprom would have likely "occurred even if relations had been warming" between Russia and the U.K., said Chris Green, a senior economist at Russian bank VTB Bank Europe.

Aton's Konchin pointed out that Gazprom had signed an international cooperation agreement with BP, and Shell with state-controlled oil producer Rosneft (ROSN.RS). "I don't see Russia going into reverse gear," he said.

But Konchin added that the row was "a negative sign for the perception of the Russian business environment" as it affects foreign companies, including in oil and gas.

The U.K. Monday said it would expel four Russian diplomats and tighten visa requirements for Russian citizens applying for entry visas through government, rather than commercial, channels.

The row continued Tuesday when Russia's Deputy Foreign Minister Alexander Grushko said the U.K. "could lose 80 diplomats if Moscow followed London's example," news agency RIA Novosti reported.

Green at VTB Bank Europe said that the current tensions "are not positive by any stretch," but "the general backdrop (of Russia's international relations) appears to have a sharp division between business and politics."

There may be some fallout for London-listed mining companies with Russian assets, however, according to Ambrian Capital analyst David Coates.

But Aton's Konchin said "I don't see Russia starting to retaliate on (U.K.) businesses."

It would be "impractical" in a context in which companies such as state-controlled oil producer OAO Rosneft (ROSN.RS) are listed in London, he said. If business was dragged into the row, "Russia would be hurt the most."

Monday, Rosneft postponed a $2 billion eurobond issue citing what it called adverse conditions in world credit markets.

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