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. Last Updated: 07/27/2016

NEWS ANALYSIS: One-Horse Race for TNK Stake




Despite government hopes that rivalry between BP Amoco and Tyumen Oil Co., or TNK, will lead to a good price for the state sell-off of a 49.806 percent stake in TNK, the convoluted investment tender format looks set to turn the privatization process into another one-horse race.


"We have a strategic investor, TNK, willing to buy this stake, and we have their tensions with BP Amoco, which we plan use to get a better price for the [state's] share," Igor Shuvalov, head of the Federal Property Fund, said Friday.


BP Amoco and TNK have been going toe-to-toe over the control of sections of ailing Russian oil major Sidanko, in which BP Amoco holds a 10 percent stake. TNK-Nyagan bought bankrupt Sidanko production unit Kondpetroleum's infrastructure assets for about $52 million at an auction late last month.


And TNK has done little to hide its desire to acquire Sidanko's troubled Chernogorneft subsidiary at an auction penciled in for Nov. 26 with a starting price of $200 million.


Although the sale of a large stake in such a rival could present the deep-pocketed multinational with a classic chance for counter-attack, BP Amoco did not signal a willingness to play ball Friday. "We are focusing on the recovery of Sidanko and we are unlikely to contemplate any new investments until this situation is resolved" BP Amoco spokesman Howard Chase said Friday regarding the TNK tender.


TNK officials refused to comment on the investment tender issue before the terms of the sale had been officially published in full. However, BP Amoco's lack of interest and the convoluted privatization tender arrangements make it unlikely that Shuvalov will be able to squeeze too much extra out of the sale.


The Property Fund has drafted a $185.3 million program for the investment tender section of the auction, which will also contain a straight cash component. The stake will be offered at a $260 million start price, including the investment program, said a source close to the tendering process who declined to be identified.


A government commission had been scheduled to agree on a tender start price Friday night, but details were not available from the fund.


The investment blueprint was developed in cooperation with TNK.


The Russian oil company's current shareholders are the likeliest buyers of the offered stake, analysts said.


Novy Holding holds a 40 percent in TNK, as well as controlling Novy Petroleum, which has a 10.1 percent stake in TNK. Novy Holding is in turn owned by three firms - U.S. company Access Industries; a Russian affiliate, Renova; and leading Russian financial conglomerate Alfa Group - each of whom hold equal stakes.


The investment program is compiled in such a way that it could be difficult for an outside investor to fulfill all its terms. For example, one of the conditions is to spend $35 million on raising TNK's stake in the Ryazan refinery from its 61.3 percent of voting shares (45.9 percent of all stock) to 75 percent of the voting shares. Acquiring that extra stock in Ryazan refinery's very illiquid shares would be difficult, especially if TNK management were to be hostile. It could also be difficult to keep within the $35 million allocated for such an operation.


Russia's biggest oil firm, LUKoil, also used such tactics when it developed the investment program that state authorities used for the privatization of a 9 percent stake in the firm late last month.


One obscure Cyprus-based firm, Reforma Investment Ltd., fought off another obscure Cyprus competitor, Cortinway Trading Ltd., for the stake, paying just $5,000 above the start price of $200 million. The investment tender had a $240.4 million program attached, part of which called for completing the construction of a semi-submersible drilling rig already owned by Nikoil investment company, a close ally of LUKoil.


While the state is moving ahead with the TNK auction, it is unlikely to go ahead with two other sales previously scheduled to take place before the end of this year, Property Fund chief Shuvalov said.


Decrees for the privatization auctions of a 25 percent plus one share stake in Rosneft and a 19.68 percent stake in Slavneft are both sitting on Prime Minister Vladimir Putin's desk, Shuvalov said. However, there is little hope they will be signed within the next two months, he added.


He declined to elaborate.


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A Pricey Program


In addition to a cash bid, companies wanting to acquire the 49.806 percent stake in TNK will need to commit to the following $185.3 million investment program:


- $42 million on drilling wells at the Permyakovskoye, Koshilskoye and Khokhryakovskoye oil fields for TNK and its subsidiaries;


- $35 million to purchase sufficient shares in the Ryazan refinery to increase TNK's stake to at least 55.5 percent of all shares -equivalent to 75 percent of voting shares;


- $20 million on repair work for 500 oil wells at TNK's Samotlor oil field;


- $17 million to service oil wells that will have a longer gap than usual between repair works;


- $12 million to repair 34 kilometers of infrastructure pipelines at Samotlor oil field;


- $6 million to build 5 filling stations and reconstruct 10 stations for TNK retail subsidiaries Kursknefteprodukt, Tulanefteprodukt, Ryazannefteprodukt, Kaluganefteprodukt and Kareliyanefteprodukt;


- $5.6 million to modernize primary crude processing facilities at TNK's Ryazan refinery using technology provided by the Koch-Glitch company;


- $2 million for reconstruction of DETOL facilities at Ryazan refinery;


- $1.8 million to modernize diesel hydro-treatment facilities at Ryazan refinery;


- $0.7 million to purchase packaging equipment for lubricants produced at the Ryazan refinery.


- Financing of Samotlor field rehabilitation programs - $43 million.


- Federal property fund expenses for the investment tender organization - $156,000


- Federal Property Fund