Kovykta license on the block

The Kovykta gas field
The license for the Kovykta gas field near Irkutsk, currently an asset of the bankrupt Rusia Petroleum has been put up for a closed auction in a single lot.

­Auction chairman, Oleg Smetanin, said the auction is based on closed sale procedure and is focused on strategic investor

"The assets are for sale on one lot, but a starting price will be set for each asset within the lot. The overall starting price will be 15.1 billion roubles and the auction will take place on February 15, 2011.”

The Rusia Petroleum assets for sale include land, buildings, structures, facilities, equipment, documentation, eligibility requirements, economic and moral rights to Kovykta gas condensate field reserves, including the Kovykta and Handinsky license.

At present TNK-BP has a 63% stake in Rusia Petroleum. WGC-3 and the Agency for Property Relations of Irkutsk own 25% and 11% respectively. In 2001 Rusia Petroleum began pilot commercial exploitation and construction of infrastructure for commercial development of the field. During 2008 the company produced 38.6 million cubic meters of gas at the field. The gas it produces is being consumed by residents and businesses in Irkutsk Oblast as part of the first phase of a program to extend gas supply to the region. Commercial development of the Kovykta field will make it possible to realize the program for gas service to Irkutsk Oblast and export gas to countries of the Asia Pacific Region.

Once Kovykta enters full exploitation, the field is expected to produce more than 30 billion cubic meters of gas per year. Denis Borisov analyst Bank of Moscow said the future of Rusia Petroleum assets will depend on Gazprom’s dealings with China.

“The assets are very attractive for a strategic investor, assuming the volume of resources of the Kovykta gas condensate field. The project can not be fulfilled and the extraction can not obtain the full capacity unless Gazprom agrees on pipe construction and opens export possibilities for gas from this field. Till now the field is orientated on local area supply. The export of gas is not feasible without the pipeline and agreement. The cost of the lot could have been calculated using the evaluation method including all infrastructure construction expenses.”

Borisov believes a likely buyer will be Gazprom which is in best position to ensure access to export markets.

“The assets either will be acquired by the parent company or by Gazprom. Still, there is a risk of field license revoke due to impossible realization. The cost of the assets is also an important issue and Gazprom may decide to wait until the assets are granted to it as the only possible investor and developer. Though, as soon as Gazprom reaches the agreement with China for additional gas export volume Irkuts gas field will be of a greater importance and effectiveness.”