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. Last Updated: 07/27/2016

Oil Majors Wrangle Over Orenburgneft

Orenburgneft — the heart of the Onako oil company — was polishing its shoes on the eve of an extraordinary shareholders meeting set for Thursday, even as its major shareholders continued to wrangle over seats on the company’s board.

"All I can say is that the extraordinary shareholders meeting will take place [Thursday] and that it remains to be seen how the shareholders will settle their dispute," said Pavel Fyodorov, head of Onako’s representative office in Moscow.

Eighty-five percent of Onako was sold last month at a government privatization auction to the Tyumen Oil Co., or TNK.

Although Onako is not terribly large as oil companies go, it fetched more than $1 billion. Its additional oil reserves boosted TNK from Russia’s fifth-largest oil major to fourth — after LUKoil, Yukos and Surgutneftegaz.

Onako produced 7.49 million tons of crude in 1999, bringing in net profits of $310 million on revenues of $840 million. This year, revenues are expected to jump to almost $1 billion and profit to $350 million, according to the NIKoil brokerage house.

But that assumes Onako keeps control of the jewel in its crown — its subsidiary Orenburgneft, a Urals Mountain production unit that accounts for 94.5 percent of Onako’s proven oil reserves and about 70 percent of Onako’s revenues.

And while TNK won the battle for Onako at last month’s privatization auction, difficult negotiations drag on.

In the Onako auction, TNK beat out a consortium that included Mikhail Khodorkovsky’s Yukos, Roman Abramovich’s Sibneft and Gazprom subsidiary Stroitransgaz.

Yukos had started accumulating Orenburgneft shares in late 1999. By the eve of the auction, one source close to the deals suggested the company had spent somewhere from $100 million to $150 million assembling a 40 percent stake.

But days before the auction, it sold off that 40 percent to bidding partner Sibneft. The same source suggested that sale went through for somewhere from $200 million to $250 million.

Now TNK may have to pay Sibneft an even higher mark-up for that same 40 percent if it wants to keep its hold on Onako. TNK’s first deputy president, Iosif Bakaleinik, said in an interview with the daily Segodnya that his company might offer Sibneft $350 million to $400 million for its Orenburgneft shares.

If that comes about, Yukos will have made a profit 100 percent to 150 percent selling the shares to Sibneft and Sibneft will, in turn, have made a similar profit selling the shares to TNK.

Onako holds 51 percent of voting stock, or 38 percent of all shares outstanding, in Orenburgneft. Sibneft owns the 40 percent stake it purchased from Yukos.

A source in Tyumen Oil suggested that negotiations between the conflicting parties could end with Sibneft being offered a blocking stake in Onako — of more than 25 percent — in exchange for its 40 percent stake in Orenburgneft.

Another official close to negotiations said that both cash and stock-swap options were under consideration but that so far negotiations were close to a stalemate.

"Price is not the only item being discussed," the official said.

Some industry insiders say that at the core of the dispute is not the minority stake in Orenburgneft, but control over Onako over the upcoming two months.

"Onako’s management is linked to Sibneft," said an analyst who asked not to be named. "At stake is control over [Onako] cash flows in the coming two months."