BP Downbeat On Its Russian JV's Output For 2008

BP Plc's (BP) oil production in Russia, which accounts for a quarter of its global output, won't grow for a second consecutive year in 2008, says the chief executive of BP's Anglo-Russian joint venture, TNK-BP Holding (TNBP.RS), the Financial Times reported on its Web site Wednesday.

Robert Dudley predicted a resumption of growth of about 100,000 barrels of oil a day in 2009, when several new projects are due to come online, up from this year's level of 1.8 million or so, the FT reported.

BP is slated to report its full-year results Feb. 5. Its Russian operations, which are considered vital to its future, will be scrutinized closely after the company was forced by Russian authorities last year to cede its 63% interest in the vast Kovykta gas field to Gazprom (GAZP.RS) at what was seen as a too-low a price for a field with gas reserves the size of Norway's, according to the FT.

But Dudley said the price was "fair and commercial" at between $700 million and $900 million, given that there was no real production from Kovykta, no market, and the scale of upstream investment required was about $6 billion. He added that he expected the deal to be concluded in the first quarter, although TNK-BP's option to retake a 25% stake could depend on the outcome of separate talks between it, Gazprom and BP, the FT reported.

There has also been speculation that the Russian government could replace the joint venture's Russian partners at Kovykta. "There are rumors that we will have a new state partner," Dudly said. "If it does happen I don't think it will change that much."

Nevertheless, the TNK-BP chief expressed frustration that the company's gas sales had been constrained by Gazprom's refusal to free pipeline capacity, the FT reported.

"We could sell more. Gazprom has enough gas to meet its needs," Dudley said. "If other companies join the pipeline network that reduces their share. When demand grows that is when we will get more access."

Copyright (c) 2008 Dow Jones & Company, Inc.