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. Last Updated: 07/27/2016

TNK-BP Net Profit Jumps 40% in 2006

TNK-BP could lose $405 million if the authorities revoke its license for the Kovykta gas field, it warned Tuesday.

Reporting a 40 percent profit jump in 2006 thanks to asset sales and cost controls, TNK-BP said it had invested $405 million in Kovykta as of Dec. 21.

"These costs may not be recovered in circumstances where the license is revoked," it said, adding that it still hoped to resolve the dispute over the gas field through talks.

The government wants to withdraw the Kovykta license, accusing TNK-BP of underproduction, while the firm says it cannot produce more as gas monopoly Gazprom has blocked its plan to build a new pipeline to China.

The battle over the $20 billion project, which has enough reserves to supply the Asia-Pacific region for five years, is seen by many analysts as reflecting Kremlin pressure to tighten control over the strategic energy sector further.

Shares in TNK-BP Holding have fallen 30 percent since the start of the year on the back of the Kovykta dispute and expectations that the Russian billionaires who own half of the venture would be forced to sell to a state-controlled firm.

But Aton brokerage said Tuesday that any sellout by the Russians could help finally remove the political risk perception and unlock hidden value at TNK-BP.

Aton raised its rating of TNK-BP to "buy" from "hold," adding that the firm was becoming "a profitable and now much better integrated company" after being restructured in 2005.

TNK-BP International -- which combines TNK-BP Holding plus half of oil production venture Slavneft and a controlling stake in Rusia Petroleum, the license holder of the giant Kovykta gas field -- said its net profit rose 40 percent last year to $6.63 billion despite a higher tax burden.

The company's EBITDA rose 23 percent to $11.15 billion and net income per barrel was $10.70 compared with $7.50 in 2005.

The company's total sales rose 18 percent in 2006 to $35.51 billion, but net revenue was only 11 percent up at $24.66 billion as export duties and excise taxes jumped 35 percent and 58 percent respectively to $10.1 billion and $765 million.

The jump in both sales and taxes was due to an increase in global oil prices, which TNK-BP said were up 22 percent for the Urals crude blend in 2006 to $61.2 per barrel.

Total costs rose by 15 percent to $18.18 billion, including a 40 percent rise in operating costs to $2.88 billion. Taxes other than income tax were up 21 percent at $6.69 billion.

Transportation expenses and costs of purchased products increased by 3 percent each to $2.36 billion and $3.46 billion, respectively.

Lower total income tax, which fell by 7 percent to $2.70 billion, also contributed to higher net profit but the biggest addition came from incremental income from disposals of subsidiaries, which soared four times to $2.9 billion.

In 2006, TNK-BP sold its midsize unit Udmurtneft to Rosneft and China's Sinopec for $3.53 billion.