Moscow Times
March 26, 2007
TNK-BP Will Bid For Yukos Assets
By Miriam Elder
Staff Writer
TNK-BP on Friday unveiled last-minute plans to bid for Yukos' stake in Rosneft up for auction this week, while BP chiefs met with President Vladimir Putin in an effort to ease increasing tensions over the British oil major's Russian projects.
The meeting between Putin, BP CEO Lord Browne and Browne's anointed successor, Tony Hayward, comes as it has become de rigeur for foreign oil bosses to win the president's blessing before striking any major deals in the country.
TNK-BP said it would bid for the 9.44 percent stake that Yukos holds in state-controlled Rosneft in Tuesday's auction -- the first in a series that will sell off the assets of the bankrupt oil company. The starting price for Tuesday's first lot, which includes the Rosneft stake, is 195.5 billion rubles ($7.5 billion), one-fifth less than its market value.
Until now, only Rosneft has announced that it would bid for the stake. Analysts said TNK-BP was likely pushed by the Kremlin to participate in the sale to lend it an air of legitimacy. In exchange, they said, the British-Russian venture may have been promised a speedy resolution to the conflict over Kovykta, its flagship project in the country.
"This is a serious participation," TNK-BP vice president Peter Henshaw said Friday. "We're interested in building a strategic stake with a strategic partner."
BP acquired slightly more than 1 percent in Rosneft for $1 billion during the company's IPO last July. Rosneft sold 13 percent of its shares in that offering and Kremlin officials have said the state will eventually seek to dilute its holding to 51 percent.
Browne met with Rosneft CEO Sergei Bogdanchikov before holding talks with Putin at the presidential residence in Novo-Ogaryovo. Tony Hayward, who will replace Browne when he steps down in July, attended both sets of talks.
"They discussed issues of mutual cooperation," Rosneft vice president Nikolai Manvelov said.
The two men's visit to Moscow, which BP spokesman Vladimir Buyanov said had been planned for months, is their second this month.
The Kremlin said in a statement posted on its web site that Putin's talks with Browne and Hayward had focused on "BP's activities in Russia and the prospects for future cooperation."
Putin praised the company, while Browne told the president of BP's plans for future growth alongside Russian partners, the statement said.
The British company has faced a slew of problems in Russia, including threats by Natural Resources Ministry officials to revoke TNK-BP's operating license for Kovykta by May if it fails to fulfill production quotas.
TNK-BP, held 50-50 by BP and a trio of Russian oligarchs, has been wrangling for months with Gazprom over the state-run gas giant's entry into Kovykta, a major gas field in eastern Siberia.
TNK-BP's decision to bid for the Yukos stake testifies that the company "possibly found common ground with the government," UBS said in a research note Friday.
TNK-BP operates Kovykta through subsidiary Rusia Petroleum, in which it owns a 62.4 percent stake. Vladimir Potanin's Interros Holding owns 25.82 percent in the company and the Irkutsk regional government holds the remaining 11.24 percent.
TNK-BP is thought to have offered to give up majority control of the field. The company's CEO, Robert Dudley, has said he expects to reach a deal with Gazprom by summer that would see the two companies jointly operate the field.
Gazprom has also said it would like to buy out TNK-BP's Russian shareholders -- Mikhail Fridman's Alfa Group, Viktor Vekselberg's Renova and Len Blavatnik's Access Industries -- when they will be able to exercise an option to sell their stakes at the end of the year.
UBS said that if TNK-BP succeeds in buying the Yukos stake, it could use the deal to swap its current Russian partners for Rosneft.
Putin has made clear that state-linked firms are to hold a 51 percent controlling stake in all major projects, and changes to the country's subsoil law are expected to enshrine that concept this year.
The dismantling of jailed oil baron Mikhail Khodorkovsky's Yukos empire has been seen as the first step in that process.
A series of auctions to sell off the company's remaining 183 assets will take place over the next two months, with the proceeds going to Yukos creditors, the largest of which are Rosneft and the Federal Tax Service.
Yukos spokeswoman Claire Davidson likened the auctions to "expropriation and theft" on Friday.
Rosneft drew loans totaling $22 billion last week, in part to fund its participation in the auctions. Of that amount, $9 billion went to a newly created subsidiary, RN-Razvitiye, for its bid to scoop up the 9.44 percent stake in Rosneft.
In Tuesday's auction, the lot with the Rosneft stake also contains promissory notes issued by Yuganskneftegaz, a former Yukos production unit now owned by Rosneft.
Yukos' court-appointed bankruptcy receiver has set the starting price of the Rosneft stake at $6.87 billion, a discount of some 25 percent to its market value.
Valery Nesterov, an oil analyst at Troika Dialog, said TNK-BP's role was to put a stamp of legitimacy on the auction.
Analysts said they expected RN-Razvitiye to win the bid, buying back the stake in Rosneft at a discount before selling it off at profit to a strategic investor within the year.
"It's clear that the Kremlin has been actively trying to persuade Western oil companies to participate in the process, but ultimately, it's most likely state companies -- Gazprom and Rosneft -- who will acquire the plum assets," said Chris Weafer, chief strategist at Alfa Bank.
The auction for Yuganskneftegaz, Yukos' main production unit, in December 2004 was marked by the victory of an unknown firm called Baikal Finance Group, which was bought by Rosneft a few days later. Gazprom withdrew its bid for the unit after an injunction from a U.S. court. The acquisition boosted Rosneft from a mid-tier oil company to the country's second-largest, after LUKoil.
As it tries to legitimize the seizure of Yukos, the state has sought the participation of international oil firms in the second round of auctions, Weafer said.
Gazprom and Rosneft are expected to go head-to-head in the auctions for five refineries and two large oil production units, Tomskneft and Samaraneftegaz. The dates for these sell-offs are the only ones yet to be set.
"One thing we've seen about government-organized auctions is that they don't actually set the auction date until it has been agreed who will win," Weafer said. "This suggests there's still an internal debate about who's actually going to win it."
Tuesday's auction comes just days after the resignation of Rosneft's first vice president, Nikolai Borisenko. Borisenko resigned last Wednesday, Manvelov said, declining to comment on the reasons for his departure. Russian media speculated he could take up a post at another state-linked company or inside the government itself.
Borisenko, a longtime ally of Bogdanchikov's who had been with the company since 1998, oversaw the company's acquisition of Yuganskneftegaz.
One banker who requested anonymity said the move was reminiscent of the departure of Sergei Alexeyev, the former Rosneft first vice president who left the company just before its IPO amid criticism of inadequate preparation.
Staff Writer Anatoly Medetsky contributed to this report.
"It's clear that the Kremlin has been actively trying to persuade Western oil companies to participate in the process, but ultimately, it's most likely state companies -- Gazprom and Rosneft -- who will acquire the plum assets," said Chris Weafer, chief strategist at Alfa Bank.
The auction for Yuganskneftegaz, Yukos' main production unit, in December 2004 was marked by the victory of an unknown firm called Baikal Finance Group, which was bought by Rosneft a few days later. Gazprom withdrew its bid for the unit after an injunction from a U.S. court. The acquisition boosted Rosneft from a mid-tier oil company to the country's second-largest, after LUKoil.
As it tries to legitimize the seizure of Yukos, the state has sought the participation of international oil firms in the second round of auctions, Weafer said.
Gazprom and Rosneft are expected to go head-to-head in the auctions for five refineries and two large oil production units, Tomskneft and Samaraneftegaz. The dates for these sell-offs are the only ones yet to be set.
"One thing we've seen about government-organized auctions is that they don't actually set the auction date until it has been agreed who will win," Weafer said. "This suggests there's still an internal debate about who's actually going to win it."
Tuesday's auction comes just days after the resignation of Rosneft's first vice president, Nikolai Borisenko. Borisenko resigned last Wednesday, Manvelov said, declining to comment on the reasons for his departure. Russian media speculated he could take up a post at another state-linked company or inside the government itself.
Borisenko, a longtime ally of Bogdanchikov's who had been with the company since 1998, oversaw the company's acquisition of Yuganskneftegaz.
One banker who requested anonymity said the move was reminiscent of the departure of Sergei Alexeyev, the former Rosneft first vice president who left the company just before its IPO amid criticism of inadequate preparation.
Staff Writer Anatoly Medetsky contributed to this report.