Source: 2 Russian Firms Quit Udmurtneft Race

Two key Russian contenders have left the race for Udmurtneft, a unit of TNK-BP, industry sources said on Tuesday, saying the move boosted chances of Indian and Chinese rivals to win the bid.

Industry sources said on Tuesday that oil firm Sibneft, controlled by state gas monopoly Gazprom, and private firm Russneft had decided not to bid for Udmurtneft. The decision leaves China's Sinopec and a joint venture between Indian ONGC and Russian mid-sized gas producer Itera as the only two declared bidders for Udmurtneft, which TNK-BP wants to sell as it restructures its asset portfolio.

Udmurtneft produces 120,000 barrels per day and has reserves equivalent to around 1 billion barrels, but its fields are located far from TNK-BP's core Siberian fields.

Some sources have said the asset carries an estimated value of $2 billion to $3 billion, and a source close to the situation said on Tuesday that both Sibneft and Russneft, which has already bought several assets from TNK-BP, had decided the price was too high.

"We have been studying this option, but are likely to decide against it. We have our own criteria to value the projects, and it looks like Udmurtneft doesn't meet them," said Sibneft's spokesman John Mann, adding that the firm had yet to make a final decision. Russneft's spokesman declined to comment.

China National Petroleum Corp. had earlier abandoned its plan to bid for Udmurtneft as they believed CNPC could never beat Russian rivals, which were likely to enjoy full Kremlin support, sources familiar with the matter said.

Industry sources have said that Sinopec, parent of Hong Kong- and New York-listed Sinopec Corp., has expressed interest in buying Udmurtneft, but also considers its chance to win the auction very small.

Dmitry Lukashov, oil analyst at Aton brokerage, said the decisions by Russneft and Sibneft were good news for Chinese and Indian firms, especially if they joined forces with Russian firms, but added that the fight was far from over. "I don't exclude that another Russian firm can turn up at the last moment if it decides that Udmurtneft offers a smooth entry into the industry," Lukashov said.

Lukashov named Basic Element, the holding company of aluminum tycoon Oleg Deripaska, among potential bidders, because the firm had said previously it was looking to expand rapidly into oil.

Chinese and Indian state firms on several occasions have failed to buy Russian oil assets.

ONGC, which is no less hungry for oil assets abroad than its Chinese rivals, had set up a venture with Itera in February to jointly bid for Udmurtneft.

CNPC, the parent of Hong Kong- and New York-listed PetroChina, also initially wanted to team up with a Russian firm but failed to find one, sources said.