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. Last Updated: 07/27/2016

TNK Strikes Deal for Sidanco

BP, Alfa Group and Interros announced Thursday that they have struck an agreement that will once and for all close the book on a takeover dispute that has captivated investors around the world.

According to the agreement, Interros will sell its 44 percent stake in oil company Sidanco to New Petroleum for $640 million, and the Tyumen Oil Co. will return oil producer Chernogorneft to Sidanco, company officials said.

New Petroleum is a recently formed holding that owns TNK. Its shareholders are Alfa Group, Access and Renova.

The deal values Sidanco at $1.5 billion, a far cry from the $5 billion it was valued at in 1997 when BP bought a 10 percent stake for $571 million.

The agreement effectively gives Alfa Group 84 percent of Sidanco, while BP keeps the 10 percent stake it already owns. The other 6 percent floats among various portfolio investors.

"In the past, we faced a lot of problems, including the loss of subsidiaries," said Dmitry Ushakov, general director of Interros. "Nevertheless, we are leaving Sidanco, we are leaving the board of directors. We wish TNK success in running the company."

Mikhail Fridman, Alfa Group's board chairman, beamed while accepting vigorous congratulatory handshakes just before the announcement of the deal.

Vladimir Potanin, the one-time Kremlin insider who controls the Interros holding, was noticeably absent. Interros' remaining assets include Norilsk Nickel and Rosbank.

Fridman and TNK were catapulted into the international spotlight in November 1999 when they bought Chernogorneft — which, at the time, was a Sidanco subsidiary located near TNK's operations on the Samotlor oil field — for $176 million at a much-criticized bankruptcy auction.

Chernogorneft accounted for much of Sidanco's crude output.

BP cried foul, and the dispute made international headlines.

A month later, in December, TNK agreed to give Chernogorneft back in exchange for a blocking stake in Sidanco. But Alfa Group repeatedly missed deadlines to close the deal, and Interros went to the courts.

BP moved into the background and held to one line: We would like to see this conflict resolved.

BP spokesman Peter Henshaw welcomed the agreement Thursday, saying that holding onto the 10 percent stake had been the company's priority. Despite the size of the stake, BP has a blocking vote on many managerial issues.

"BP welcomes these developments and believe they are strongly positive for all those concerned," Henshaw said.

He also called the negotiations "long and arduous."

"This is a long and difficult course we have steered," he said. "We look forward to the return of Chernogorneft to Sidanco."

Chernogorneft's production and revenues — which have long been part of TNK's books — are to be returned to Sidanco in a matter of weeks.

BP will continue to hold its blocking vote at Sidanco under a contract that expires in three years.

Without Chernogorneft, Sidanco's growth has languished compared to that of other Russian oil companies. With Chernogorneft, which produces about 128,000 barrels a day, Sidanco was Russia's eighth-largest company. After TNK took the subsidiary under control, Sidanco fell to 10th place.

Sidanco president Robert Sheppard said Thursday that once Chernogorneft is back, Sidanco's production will grow to 330,000 bpd.

TNK, with its 84 percent stake in Sidanco, will bypass Surgutneftegaz to become Russia's third-largest oil company in terms of production.

While Fridman said it was too early to discuss the possible merger of TNK and Sidanco, the virtual buyout of the company as agreed upon Thursday was a move predicted by industry players since Chernogorneft's bankruptcy auction in 1999.

Relief — at times sad, at times triumphant — was reflected in the faces of the luminaries gathered to announce the agreement in a hall with a glass wall overlooking the Kremlin in the National Hotel.

"We gave it our best shot and achieved a good financial result, not only for us but for our investors," said Ushakov of Interros.

The conclusion of the Chernogorneft saga should reflect positively on Russia's investment climate, said Valery Nesterov, an oil analyst at the Troika Dialog brokerage.

"We are often reminded of BP's problems with TNK when people talk about the experiences of multinational oil and gas companies in Russia," Nesterov said. "This puts the scandal in the past."

Fridman said the deal was the same as one made with Cyprus-based Kantupan Holdings, a former Sidanco shareholder, earlier this year. According to that agreement, companies close to TNK brought Kantupan's 40 percent stake in Sidanco for $600 million. Kantupan's investors include NTV general director Boris Jordan, British billionaire Joe Lewis and former Ford executive Michael Dingman.

Sidanco, however, contested the sale and asked a London judge to freeze the 40 percent stake.

Under Thursday's agreement, Sidanco agreed to drop the lawsuit and other pending litigation.

Pending litigation includes a lawsuit over Rusia Petroleum, a venture that holds the license to the potentially lucrative Kovykta gas condensate deposit near Irkutsk.

The field is estimated to hold 1.2 trillion cubic meters of gas and is seen by analysts as BP's main project in Russia.

Last month, Alfa Group successfully petitioned a regional court to prevent Interros from participating in a shareholders meeting, a ruling Interros was contesting.

According to the new deal, Interros will not challenge the legitimacy of the meeting, and Sidanco and Alfa will each take a blocking stake in the company. BP will keep its 30 percent.

An investment plan for the Kovykta field has been drawn up, and "all parties will contribute to the company's development according to international business standards," according to a joint statement by New Petroleum and Interros.

The companies estimate that Kovykta will require $10 billion in investment over the next eight years. The project involves building a pipeline to supply gas to China and South Korea.

While BP said it is ready to work with Alfa Group and TNK on Chernogorneft and Rusia Petroleum, it currently has no plans to extend that cooperation beyond Russia's borders.

"The focus of our work has to be in Russia for the moment," Henshaw said.