Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

NEWS ANALYSIS: TNK Boss Set to Torpedo Amicable Sidanko Deal




As Thursday's creditors committee meeting looms for crucial Sidanko production subsidiary Chernogorneft, an amicable settlement looks unlikely.


Chernogorneft f and the 124,500 barrels a day it produces f is the main battleground between international oil major BP Amoco and rising Russian firm Tyumen Oil Co., or TNK. The oil production unit was once solidly controlled by its parent company Sidanko, but it has slipped more and more into TNK's orbit over the past months, especially since bankruptcy proceedings were instituted against Sidanko in February.


While BP Amoco has been struggling to hold Sidanko together in an effort to recoup as much as possible of its Russian investments, TNK has been pushing to acquire Chernogorneft, claiming that the latter's operations would integrate much more nicely with its other assets than it fits with Sidanko's.


A Sidanko-backed plan for an amicable settlement will be presented Thursday by Chernogorneft external manager Alexander Gorshkov to a creditors committee that will be chaired by former Sidanko president Boris Volkov.


The plan will be put to a vote Sept. 10. At that stage it will likely be torpedoed by TNK f which has managed to consolidate some 60 percent of the oil producer's creditors votes f Tyumen Oil's president, Simon Kukes, said Tuesday in an interview.


"In May we announced our intentions. We started to accumulate the debts and we have a program for hostile takeover [of Chernogorneft]," he added.


Inspired by strong support from BP Amoco, Sidanko has been fiercely resisting TNK's attempts to take over Chernogorneft. BP Amoco paid $571 million for a 10 percent stake in Sidanko in 1997 and has since written that investment down to $371 million. Chernogorneft's debts to creditors stand at about $100 million.


Even as it pursues its aggressive campaign to snag Chernogorneft, TNK has been holding out an olive branch to BP Amoco, one that the powerful multinational has not deigned to pick up.


TNK has been trying to convince BP Amoco to ally with it so that they can run Chernogorneft together, Kukes said.


"We want to participate in acquisition of Chernogorneft with a partner or without a partner. Of course, with a partner is better particularly if it's BP Amoco," he said.


But BP Amoco has brushed aside TNK's proposals.


"We believe an amicable settlement is the right solution, which should be supported by all parties," BP Amoco's Moscow spokesman Howard Chase said Tuesday in a telephone interview. "We see no reason why Chernogorneft should be liquidated," he added.


TNK first contacted British Petroleum f which merged with Amoco early this year f over joint business opportunities last October. TNK also held a presentation at one of BP Amoco's offices in January, Kukes said.


In late April, Tyumen Oil offered BP Amoco the chance to act as buying agent for almost all of TNK's exports, which are worth an estimated $4 million a day.


"We would be prepared to discuss giving [BP Amoco] exclusive offtake rights to TNK crude and refined products export, totalling over 200,000 barrels per day, as a first stage to an agreement between our companies," TNK states in a letter signed by Kukes and TNK board member Len Blavatnik.


BP Amoco's sole response so far has been a letter signed on behalf of Sir John Browne, BP Amoco chief executive, acknowledging receipt of TNK's proposal.


Kukes said most of TNK's exports went through France's Total and a Russian firm, Crown Trading and Finance.


"Crown Trading and Finance is not our [proprietary] trading company, it's temporary. We want to set up our own trading company," Kukes said.


BP Amoco, with its reputation as a powerful trader, would therefore be an excellent partner for TNK.


Kukes claimed Tuesday that a TNK takeover of Chernogorneft would be a favorable result for both sides because TNK's Nizhnevartovskneftegaz and Chernogorneft both operate at the same giant Samotlor oil field. TNK has secured a production-sharing agreement for the deposit that could be easily extended for Sidanko subsidiary, he added.


Joint crude extraction by the two firms would see production costs dip by 60 cents per barrel by the end of next year. Costs are running at less than $3 per barrel now, but are due to rise to the $4.20 a barrel in 18 months, Kukes said.


"It will be a big loss for the region and for the country if BP Amoco pulls out. And it will be a big loss for the region if we [fail to reach an agreement] because then somebody else will grab [Chernogorneft]," Kukes said.