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. Last Updated: 07/27/2016

Kukes Vows to Return Chernogorneft

A high-profile battle over a Siberian oil producer involving oil major BP will be resolved by the end of July, Russia's No. 4 crude producer Tyumen Oil Co. said Wednesday.

Simon Kukes, president of Tyumen Oil Co., or TNK, said his company would return the 140,000-barrels-per-day Chernogorneft to Sidanko, a firm in which BP owns a 10 percent stake.

"We are fully committed to returning Chernogorneft by the end of the month. We are in the final stages of discussions on this," Kukes said. "It will be returned to the satisfaction of all parties, and BP will retain control."

TNK bought Sidanko's crown jewel for $176 million during controversial bankruptcy proceedings in 1999. Its real worth is put at up to $2 billion.

Last December, TNK agreed to return Chernogorneft in exchange for 25 percent plus one share in Sidanko. But the company later dragged its feet, only to reveal it had quietly bought 40 percent of Sidanko from a third party.

So in effect, it will return Chernogorneft to itself.

Kukes defended the delay as an issue that took time. He said TNK would respect earlier pledges, such as giving BP control over Sidanko management and financial flows.

"BP will find its decision to enter Russia was justified. It will do well. We want them to play a big role in Sidanko and look to BP to take the lead [in the Kovykta gas project]."

Many see the Sidanko row as a litmus test for Russian risks. It prompted BP to lobby the U.S. Export-Import Bank to briefly suspend $500 million in loan guarantees to TNK.

Kukes said the dispute's outcome would prove foreign firms could work well in Russia, despite a poor track record so far.

"Joint ventures are like dating. How many dates fall apart before you finally fall in love and get married?" he said.

"And even after that you may get divorced — such things take time, especially in a country as complex as Russia."

But Kukes said the future for foreign oil firms in Russia lay in taking equity positions rather than in joint ventures.

"Why not take equity positions, sit back and enjoy the dividends? And now we have access to new technology, so I feel joint ventures are just the wrong route," he said.

Kukes said TNK was involved in several ventures with foreign firms, including Siberia's giant Kovykta gas field, where BP has 31 percent of a project to produce and ship gas to China.

He said another joint venture with Occidental Petroleum, the 60,000 bpd Vanyoganneft, was working well and would soon be expanded, with an increased role for the U.S. partner.

TNK has also teamed up with Texaco for downstream expansion in the former Soviet Union.

But TNK in recent weeks also has been embroiled in a nasty spat with Canada's Norex Petroleum over the Yugraneft field — an issue that was brought up by Canadian Prime Minister Jean Chretien during his recent visit to Moscow.

Norex says its officials were evicted from Yugraneft after TNK obtained a court order to freeze 50 percent of its shares, accusing it of failing to make promised investment.

Kukes said the fight over the tiny 7,000-bpd field was a matter of principle for TNK, which has proven crude reserves of 8.2 billion barrels and produces 800,000 bpd.

"If someone cuts off your finger, it still hurts," he said. "Someone can't just take away what is ours no matter how small, but let the court decide and we shall accept its ruling."