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Financial Post (Canada): Russia will control its resources: BP: International firms should expect no less, Browne says

Published: Nov 24, 2006

HELSINKI – BP PLC chief executive John Browne said yesterday international oil companies should not expect to control Russia’s natural resources.

“We have learned about the importance of oil and gas for national security,” Lord Browne said at the EU-Russia Industrialists Forum in Helsinki. Russian assets “will remain predominantly Russian assets.”

BP’s TNK-BP venture, the second-largest privately owned oil company in Russia, has started becoming an anomaly as Vladimir Putin, the Russian President, increases state control over the energy industry to build the country’s global political and economic power. The government is tightening control over projects led by foreign companies, including BP and Royal Dutch Shell PLC.

While international investment can be “welcomed” to develop the resources, the issue of security means they will remain mainly Russian, which may not be understood internationally, Lord Browne said.

“Some people still seem to think that national assets in Russia will be sold off,” Lord Browne said. “That represents a profound misunderstanding of the Russian view of its precious resource base.”

Russia’s energy industries will generate a third of national income this year and hundreds of thousand of jobs, he said.

“We are delighted to have made these investments and to have been welcomed as international partners,” he said.

Lord Browne also praised Russia’s role in “stabilizing” world energy markets over the past four years when the war in the Middle East and civil conflict in Nigeria pushed prices up. Russia has increased its oil and gas exports as energy prices rose and its economy rebounded from a financial crisis in 1998.

“Without Russia, the world market would have been much more volatile, potentially causing great damage to the international economy” he said. “That important pre-eminent role looks set to continue” because of its oil and gas reserves and scarcity of cheaply producible resources elsewhere.

On Wednesday in Moscow, he met the heads of state-run OAO Gazprom and OAO Rosneft, Russia’s largest companies by market value.

Lord Browne and Gazprom chief executive Alexei Miller discussed co-operating on projects and liquefied natural-gas sales, the Russian company said on Wednesday. The two men will meet again in the first quarter of next year.

BP and Rosneft will spend US$700-million over the next five years to develop fields under the Sakhalin-4 and Sakhalin-5 projects through a venture they set up in 2003, Rosneft said in an e-mailed statement on Wednesday after a meeting between Lord Browne and Rosneft CEO Sergei Bogdanchikov.

Gazprom has been buying tankers of LNG, which is gas chilled to a liquid, from companies such as BP and selling to customers in the United States to gain experience in the market. Gazprom does not yet produce LNG itself. BP is now bidding in a tender to join Gazprom’s proposed Baltic LNG plant near St. Petersburg.

TNK-BP formed a venture earlier this month with Gazprom’s petrochemical arm to refine associated gas, which is extracted along with crude oil.

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