BP may take stake in enlarged TNK - sources.
29 Jan 2002
Britain's BP has held talks that may lead to its biggest Russian oil investment yet via a stake in TNK - a firm that was its bitterest adversary there until last year - industry sources said on Tuesday.
"This is by no means a done deal, but it's an option being looked at," said one source, who stressed that the talks were at a very early stage and a deal could be many months away.
The possible move onto the shareholder register of a revamped Tyumen Oil (TNK), Russia's third largest oil company, would be a boost for President Vladimir Putin's campaign to attract back western investors scared away by past corruption scandals.
For BP, it could be the breakthrough it has long sought into Russia's massive oil wealth, and the deal that rehabilitates its ill-starred 1997 investment in another Russian oil company, Sidanko, now a subsidiary of TNK.
The talks are linked to TNK's well publicised plan to merge fully with Sidanko (also spelt Sidanco), in which BP holds 10 percent and TNK 84 percent.
TNK executive director German Khan said in January the company was planning to consolidate its multiple assets, including Sidanko, bringing them under a new parent company TNK-International.
BP's multinational status and stock market value of more than $150 billion dwarfs privately-held and debt-laden TNK in terms of financial firepower.
But including Sidanko's near 400,000 barrels a day, TNK produces over one million barrels of oil equivalent a day of oil and gas - more than many western rivals, and half as much as BP itself.
A TNK stake that took it further into the enlarged business could help the British giant keep its ambitious 5.5 percent annual output growth pledge to shareholders. BAD SIDANKO EXPERIENCE
Nevertheless, despite the attractions, sources warned that after a bad experience with Sidanko, and given TNK's heavy debts estimated at some $2.5 billion, BP would not be rushing into any arrangement.
A BP spokesman in London confirmed the company's warmer stance on Russia, but would not go into details.
"We are aware of preliminary (merger) talks going on between Sidanko and TNK," he said. "We've made no secret of the fact that Russia is a place where we could deepen our interests, but it's too early to say how that might happen."
Late last year one of Sidanko's most important assets, west Siberia producer Chernogorneft, was returned to its control after a lengthy struggle between BP and TNK.
TNK acquired Chernogorneft in 1999 through the courts after launching bankruptcy proceedings against it based on debts it owed TNK.
BP, which had paid $571 million for its stake in Sidanko in 1997, protested the removal of this key asset.
The dispute was eventually settled in a complex deal where TNK bought 84 percent of Sidanko from other major shareholders, Interros industrial group and a set of western investors, for about $1.5 billion.
In return, Chernogorneft was reintegrated with Sidanko and BP agreed to stay with its shareholding and to keep its man, Robert Shepherd, at the head of the company.
But this was not before the debacle had forced BP to write off part of its investment, leaving it and other western companies in doubt as to the quality of corporate governance in Russia.
Other assets TNK now plans to bring under the roof of TNK International include its controlling stake in Onako, an oil firm in the Urals bought from the state in 2000 for $1.08 billion and managed together with Sibneft.
TNK is also a partner with BP in the giant Kovykta gas field in Irkutsk region in Eastern Siberia. TNK holds 25 percent and BP 30.
TNK itself is 50 percent owned by one of Russia's largest private banks, Alfa Bank, through its subsidiary Alfa-Eco, and 50 percent owned by Renova, a subsidiary of the U.S. based Access Industries group which is a holding company for private investors. HOT RUSSIAN OIL
Russia produces nine percent of the world's oil and is sitting on one third of its natural gas reserves.
A surge in the value of Russian oil shares and in western oil companies' interest there took place last year in the wake of perceived improvements in corporate governance.
The September 11 attacks on the United States, that raised questions over the future of Middle East supplies, helped too.
Last week, France's Totalfina Elf, which has also been aproached to take a TNK stake according to Reuters' sources, struck a deal with Russian number two oil group Yukos for Black Sea exploration.
Earlier in Janaury, Russian number one Lukoil raised its western investor profile by nominating a leading ChevronTexaco executive as an independent director.
(C) Reuters Limited 2002
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