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. Last Updated: 07/27/2016

TNK-BP Wins Its Kovykta Challenge

Itar-TassAn aerial view of the Kovykta gas field. The license to operate the field will be valid for the duration of the court case.
Rusia Petroleum, which is 62.9 percent owned by TNK-BP, has won the right to mount a legal challenge against the government over plans to revoke its license to develop the Kovykta gas field, TNK-BP said Monday.

Since filing suit with an arbitration court in Irkutsk at the end of April, Rusia Petroleum has won a court injunction to stop the Federal Subsoil Agency from canceling the license for the duration of the trial.

The agency earlier threatened to withdraw the license any time after May 20, which is the deadline that it gave the company in February to increase production for the regional market by 265 times more than last year's output, as required by the terms of the license.

TNK-BP responded that the region would not consume so much gas. The current Irkutsk regional development program for 2006 to 2010, which is published on the regional government's web site, stipulates that Kovykta will not start supplying any significant quantities of gas until after 2011.

In its suit, Rusia Petroleum will try to "clarify the essence of the company's license liabilities," TNK-BP spokesman Alexander Shadrin said, declining further comment.

Rusia Petroleum produced 33.8 million cubic meters of gas from the field last year, while the license requires it to have pumped 9 billion cubic meters. Kovykta holds 1.4 trillion cubic meters of gas.

The court scheduled preliminary consideration of the case for May 23. The Federal Subsoil Agency would not comment on Monday.

Rusia Petroleum's other shareholders are investment company Interros, controlled by metals billionaires Vladimir Potanin and Mikhail Prokhorov, which holds 25.8 percent; and the government of the Irkutsk region, with 10.8 percent. TNK-BP holds Rusia Petroleum separately from its publicly traded TNK-BP Holding and any threat to Kovykta has no direct impact on the listed company.

The court's ruling to suspend any government action against Rusia Petroleum showed that it might not have to part with the license, analysts said. "We remind investors of the risk that the Kovykta field license may be withdrawn from Rusia Petroleum," Deutsche UFG said in a note Monday. "However, the court's ... ruling has postponed the revocation and may eventually result in Rusia Petroleum keeping the license."

Gas export monoploy Gazprom, which needs new gas reserves for its plans to pump gas to China, and TNK-BP have said they are negotiating to make Gazprom a partner in the field's development. TNK-BP is the only major energy company in Russia without a state shareholder.

The two companies are remaining in permanent contact as they seek a solution for the field's future, Gazprom deputy CEO Alexander Medvedev said last month.