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. Last Updated: 07/27/2016

Unexim Drops Out Of Rosneft Auction




Another major bidder for state-held Rosneft dropped out of the race Monday, casting greater doubt on Russia's ability to sell the oil giant in time to raise emergency funds for its federal budget.


British Petroleum and Russia's Uneximbank said low world oil prices and other investment commitments have forced the duo to abandon the privatization contest. The two companies had been considering a joint bid since BP bought a 10 percent stake last November in Sidanko, the oil company controlled by Uneximbank.


The deadline for bidding is July 16.


"We have agreed with Uneximbank and are informing the government that we will not be making a bid for Rosneft due to our commitments to our existing Russian assets, particularly the long-term development of Sidanko and the Kovykinskoye gas field," BP said in a statement Monday. Earlier in the day, Uneximbank announced separately it was bowing out.


"We studied the question but decided not to participate," Uneximbank spokesman Sergei Chernitsin said. "The negative state of the oil market was the main reason."


The alliance's announcement followed Royal Dutch/Shell's statement Thursday that it would not bid on Rosneft with partners LUKoil and Gazprom. The Anglo-Dutch oil major also cited low oil prices as well as the difficult financial standing of its Russian partners as the reason for its decision.


The back-to-back withdrawals have all but devastated Russia's plan to sell Rosneft quickly and use the proceeds to shore up its foundering federal budget.


After Shell's dropout, Prime Minister Sergei Kiriyenko acknowledged over the weekend that Russia's second attempt to sell Rosneft might fail, and said the government was preparing to raise other sources of revenue just in case.


"If there is the potential for a rise in oil prices by the end of this year and next year, then the conditions for Rosneft are perfectly acceptable, and an investor will be found," Kiriyenko said in a Sunday evening television interview. "If investors have a pessimistic view of the oil market, it could be that no one will come to the market."


Russia's first attempt to sell Rosneft failed in May when bidders turned up their noses at the $2.1 billion starting price plus $400 million in required investments. Privatization officials immediately knocked the price down to $1.6 billion plus $65 million in investments, but even the discount doesn't seem enough to overcome a severely depressed oil market.


World oil prices earlier this month fell to below $11 per barrel, their lowest in twelve years. The sharp reduction in prices has cut into the earnings of Russian oil producers and their foreign partners, leaving them unable to justify spending billions on a major acquisition like Rosneft.


Without Shell, partners LUKoil and Gazprom could have a hard time raising the $1.6 billion Rosneft starting price on their own. Gazprom chief Rem Vyakhirev last month said the two Russian companies were counting on Shell to raise the cash. "Neither we nor LUKoil have the money," he said.


Kiriyenko hinted Russia would postpone the auction should it fail again. "Sometimes, when the market is bad, it is better to put off a sale," the prime minister said Sunday.


An oversupply of crude on world markets has socked oil prices by about 40 percent since October. The Organization of Petroleum Exporting Countries has twice agreed to lower production quotas, but the latest attempt, announced this month, has done little to boost prices out of the doldrums.


Should the current auction fail, Russia could shoot for a different group of investors. One oil analyst who asked not to be named said foreign investment banks could be interested in Rosneft if the government offered 100 percent for sale.


This would offer a bank the opportunity to buy Rosneft and resell its pieces to various oil companies, he said.