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. Last Updated: 07/27/2016

Agency Puts Off Its Decision on Kovykta

The Natural Resources Ministry's subsoil agency put off a decision Friday on stripping TNK-BP of its Kovykta gas field license by two weeks, allowing the government to sail peacefully through the Group of Eight summit and avoid upsets at next weekend's economic forum in St. Petersburg.

A committee of the subsoil agency had been widely expected to revoke the license Friday, but held off.

"The committee will submit its recommendations on the Kovykta project to the head of [the agency] and the final decision will be taken within two weeks," a ministry spokesman said.

TNK-BP confirmed that the decision had been postponed, but declined to comment further. Interfax quoted a source as saying the agency had postponed the decision "due to the complexity of the issue."

President Vladimir Putin confirmed that TNK-BP could lose the license, Germany's Der Spiegel cited him as saying in an interview published Saturday.

The company's failure to produce as much gas as stipulated in the agreement "poses the question whether one should revoke the license,'' Putin was cited as saying.

Analysts said the committee's delay was not unexpected, but it was unlikely to change the final outcome.

"Ultimately the license is likely to be recalled," said Steven Dashevsky from Aton brokerage.

Russian media on Friday quoted sources close to TNK-BP as saying the agency might postpone the decision until the end of the St. Petersburg International Economic Forum on June 10. The Kovykta project might have emerged also on the agenda of the G8 summit to be held June 6 to 8 in Germany.

The ministry's environmental agency earlier this year accused TNK-BP of underproduction at the field. The firm had hoped to use the field for gas exports to China but was forced to trim production to cover only local needs after Gazprom banned the plan as it has its own rival project to supply China.

Gazprom CEO Alexei Miller and BP CEO Tony Hayward met in Moscow on Thursday but gave little information other than to say they discussed working together in the European, U.S. and Russian energy markets.

TNK-BP has tried to rescue the project by ceding control to Gazprom, but the latter has said it is not interested in the field as the project is risky.

"Even though the chances for a precedent-setting license repeal ... are high, we still hope that TNK-BP and Gazprom can find a last-minute solution," said Oleg Maximov from Troika Dialog.

Analysts have said Kovykta could become part of a broader deal between the two companies, under which Russian billionaire shareholders would sell half their share in TNK-BP to Gazprom.

"We believe that in the next six to nine months, a potential deal with a Russian state-owned major, a campaign to raise the company's capital markets profile, or a combination of the above are likely to release significant value to TNK-BP's investors," Dashevsky said.

n The licensing committee also reviewed compliance by other oil firms, including Sweden's Lundin Petroleum and Imperial Energy.

It revoked Lundin's license to develop an offshore Caspian Sea deposit and gave Imperial Energy's units three months to put violations right at its Siberian field.