As Russia continues to strive towards consolidation of its energy resources under state control, it looks like it is only a matter of time before BP plc (NYSE: BP) is going to get the boot from its Siberian Kovykta field. Russia has been threatening this action for about 4 years now, and earlier this week the company lost its appeal to keep Russia from revoking its license.Russia has been working hard over the past year to regain control of the nation's oil reserves and today the state licensing agency is due to meet to discuss the possibility of killing BP's $20 billion license to the highly lucrative Kovykta field. Just how big is Kovykta? Plenty big, and it is estimated that there are enough oil reserves in the field to supply all of Asia's oil demand for five years, or supply the entire world's demand for oil for an entire year. I would say that is a pretty significant supply!
It is possible that during today's meeting, the state agency will postpone the decision until after the upcoming G8 Summit and its landmark economic forum. The economic forum will come to an end on June 10 and it is definitely possible that the decision will be put off until that time, but all signs are pointing to the eventual revoking of BP's license.
This will be a big factor in BP's future business. The company currently relies on Russia for about 25% of its current production and 18% of the companies proven reserves.
BP is not the only company that has a lot at stake here. Russia has been making waves over the past year with foreign oil companies and if it opts to revoke BP's Kovykta license, it will definitely create a ripple effect of confidence through all the country's foreign partnerships. The Russian government is now in control of over one-third of all the country's oil production and it definitely is looking to increase that percentage.
For now, we will just have to wait and see what the outcome of today's meeting is, but according to the Russian Vedomosti daily newspaper, it is not a matter of if the license will be revoked, but only a question of when.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor'sObserver.
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Reader Comments (Page 1 of 1)
6-27-2007 @ 12:30PM
dan said...
This could be a good thing for Russia and any possible investors of Russian Oil Stocks. The potential future growth for Russian Oil Production looks good so far based on articles like these. I recommend this article i found last week...
http://www.whiskeyandgunpowder.com/ppc/RussianOilReport2.html
Cheers!