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Russian Regulators Postpone BP Kovykta Gas Field Decision

Regulators postponed a decision Friday on revoking the license of BP's Russian joint venture for a giant gas field, days before President Vladimir Putin heads into a Group of Eight summit amid grumbles about the Kremlin using energy as a political weapon.

Before the meeting that could have seen the license for the Kovykta field pulled, the deputy head of Russia's environmental watchdog, Oleg Mitvol, said BP was likely to lose the authorization to develop the 2.1 trillion cubic meter field.

But Alexander Shadrin, a spokesman for TNK-BP, the company's Russian joint venture, said the decision had been postponed for two weeks. "The meeting took place, no decision was made," he said.

The Interfax news agency cited an unidentified source familiar with the talks as saying that the delay was "due to the complexity of the matter."

That would put any move beyond the end of next week's summit of the G-8 nations in Heiligendamm, Germany. Russia is also set to host a showcase economic forum in St. Petersburg next weekend.

Mitvol argues that BP has been underproducing at the Kovykta field and should therefore lose the rights to develop it. On Friday he cited draft minutes for the meeting, which recommended that BP's permit be pulled for failing to meet a 9 billion cubic meter per year production target.

BP has countered that it was only meant to meet local demand, which is far lower. Shares in the oil company fell 0.5% to 561.5 pence (8.26 euros; $11.10) in London.

Meanwhile, the opportunity to export gas to China, which would spur development of the field, has so far been blocked by state gas monopoly OAO Gazprom -- the only company allowed by law to export Russia's gas.

The meeting came against a backdrop of rising state control in the oil and gas industry: In December Gazprom took control of the Sakhalin-2 liquefied natural gas development on the Pacific Coast, elbowing Royal Dutch Shell into a minority position, amid a series of environmental checks.

Similar to Sakhalin-2

Investors are watching for a decision at Kovykta intently: A deal similar to Sakhalin-2 where BP keeps a stake, albeit a minority one, would be palatable, they say. However, were BP to lose the license with no compensation, the investment climate would take a battering.

"There's no way that any strategic assets such as Kovykta will stay in the ownership of a foreign company. The fact they will lose control is a given," said Chris Weafer, chief strategist at Alfa Bank in Moscow.

"The worst-case scenario is that they get kicked out ... then we'll have the whole uncertainty factor back again that would be bad for the investment climate and bad for assets."

A back-taxes campaign against the Yukos oil company and a parallel criminal case against its founder Mikhail Khodorkovsky hammered investor confidence in Russia; foreign funds lost billions as the company's value evaporated.

But investors quickly forgot their jitters in the face of surging oil prices. Foreign oil companies are now clamoring to cut deals with Rosneft and Gazprom, viewed as the state's gatekeepers to Russia's energy riches.

The Kovykta field, located in the north of Siberia's Irkutsk region, contains enough gas to supply the EU for over four years at 2005 levels, according to BP's statistical review.

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