Gazprom finally grabs Kovykta for $771 million!!! Is Kovykta there in Gazprom’s near term development list??

Gazprom has acquired the assets of RUSIA Petroleum for about 22.6 billion rubles ($771 million), or 50% more than the auction starting price. RUSIA Petroleum, 62.7% owned by TNK-BP, is the operator and the license holder for development of the giant East Siberian Kovykta gas field. Gazprom outbid Vostokgazinvest, a subsidiary of the Rosneftegaz, which holds the Russian government's stake in Rosneft.


Kovykta Overview
The Kovykta field, discovered in 1987, is one of the largest undeveloped gas fields and situated 450 km from Irkutsk, in the northern part of the Irkutsk Region. The reserves of this field amount to 2 trillion cubic meters of gas and more than 83 million tons of gas condensate. TNK-BP controlled the Kovykta gas field for some 15 years and intended to supply gas from the field to China. However, the Russian authorities started asserting greater control over natural resources and dropped their previous plans to liberalize access to Gazprom's pipelines, which would have provided an outlet for Kovykta's gas to market.

The government threatened to revoke the Kovykta license from TNK-BP for low production levels, and the firm finally decided to quit the project in 2007. In 2007, Gazprom signed an agreement to buy a 62.8% stake in RUSIA Petroleum to take over the Kovykta field, but the deal was remained uncompleted until now over the price. In October 2010, a Russian regional court declared RUSIA Petroleum bankrupt since it had failed to adhere to the terms of the license agreement, under which it should produce nine billion cubic meters of gas annually. TNK-BP has invested $675 million in Kovykta field till date.

Is development of Kovykta possible in the near future?

Rusia Petroleum began pilot commercial exploitation and construction of infrastructure for commercial development of the field in 2001. 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.

However, in October 2010 Gazprom chief Alexei Miller said “Gazprom wouldn't want to develop the Kovykta field until 2018”. Analysts comment on the deal saying, "Gazprom could tap the field as a source for its own supply agreement with China as Gazprom faces mounting pressure to reach a deal after years of failed talks. China had made clear they wanted Russia to supply via an eastern route and Kovykta is in the best position to supply."

To meet this China gas demand, will Gazprom go in for an early development of Kovykta or stick to its 2018 development plan??