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. Last Updated: 07/27/2016

BP Reluctance Adds To Rosneft Sale Fears




A top British Petroleum executive has said the company is unlikely to bid for Russia's state-held Rosneft at the current asking price, casting further doubt on whether the privatization sale will take place.


British Petroleum had said it would bid for Rosneft with Russia's Uneximbank. But chief executive John Browne this week echoed other bidders' complaints that the $2.1 billion starting price for a 75 percent stake is too high.


"We might be interested," Bloomberg quoted Browne as saying at a Monday news conference in London. But at the $2.1 billion price, "it looks out of the question."


Apart from British Petroleum and Uneximbank, two other groups are widely expected to bid for Rosneft; oil company Yuksi, the product of a merger between firms Yukos and Sibneft; and an alliance of Gazprom, LUKoil and Royal Dutch/Shell.


But all three groups in recent weeks have argued that the price is too high, putting pressure on the government as the May 26 auction date looms.


Browne said no final decision has been made, and that the company is waiting for more details on the sale's conditions. Russia's State Property Ministry said Thursday that it will distribute to all potential buyers an 80-page appraisal of Rosneft's worth to ensure maximum transparency in the sale process.


Analysts believe that Rosneft bidders simply could be negotiating for a lower starting price, but agree that in the current environment of depressed world oil prices a $2.1 billion purchase must be scrupulously examined. The winning bidder will be required to invest an additional $400 million in Rosneft, pushing the total outlay to $2.5 billion.


"You can pay the price, but you have to take into consideration how much money you will make out of your investment and how much is justified," said Irina Pinkovsky, an oil analyst with Merrill Lynch in London.


The government doesn't look willing to budge on the price. Privatization officials and representatives of Dresdner Kleinwort Benson, the investment bank that evaluated Rosneft's worth and helped set the starting price, held a news conference last month to defend the methodology used in the bank's evaluation. Using a variety of analyses, Kleinwort Benson estimated Rosneft's total worth at $2.2 billion, making a 75 percent stake worth $1.6 billion. The government then added a 25 percent premium for the stake, as the winner would achieve effective control of the company.


"It is their decision whether to participate or not," a State Property Ministry spokeswoman said of BP's comments. "The tender is continuing, and we are accepting bids."


An Uneximbank spokesman would not say whether the bank will look for a different partner should BP drop out. "The bank has not made a final decision" on the contest, spokesman Sergei Chernitsin said.


An official with Shell said the Shell-Gazprom-LUKoil consortium is still intact, but would not say whether the triumvirate will submit a bid.


"Rosneft still does have some attractive assets," said Andrew Seck, a business analyst with Shell. "Our consortium is still intact, but I cannot say whether we will submit a bid."


Although officials have said they will sell Rosneft in smaller pieces should the current auction fail -- a route opposed by all potential bidders -- Pinkovsky predicted that the government will likely keep the same price and simply postpone the sale until world oil markets improve.


Results of the auction are expected by May 29 or 30.