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. Last Updated: 07/27/2016

Bidding for Slavneft Starts at $1.7 Billion

The State Property Fund announced Monday that it has begun accepting bids for 74.95 percent of Slavneft at a starting price of $1.7 billion.

Bidding will continue until Dec. 15, and the winner will be announced Dec. 18.

The privatization of Slavneft, which produces some 4 percent of all the country's oil, should be the largest in Russian history and has grabbed the attention of all domestic oil majors, as well as some unnamed foreign companies.

The State Property Fund earlier said that the stake would be auctioned off for $1.3 billion.

Leonid Fedun, vice president of No. 1 oil major LUKoil, announced Monday that his company will participate in the auction for Slavneft, one of the last two state-owned oil companies. The other is Rosneft.

Tyumen Oil Co., or TNK, and Sibneft have already said they would bid.

TNK may submit a joint bid with rival firm Sibneft, TNK vice president Igor Dibtsev said Monday.

"A joint bid, combining us and Sibneft could be interesting and beneficial to both sides," he said without elaborating, Reuters reported.

LUKoil is "extremely interested" in Slavneft, Fedun said in a telephone conference call.

"Slavneft assets are being sold at about 40 to 50 cents per barrel, which we see as a good investment opportunity," he said.

LUKoil recently raked in $1.25 billion from the sale of its 10 percent stake in the Azeri-Chirag-Guneshli oil field in the Caspian.

Fedun did not say whether LUKoil would use that money to bid for Slavneft. He did say the company plans to use funds from the sale for projects in which it holds a majority stake, mostly upstream and in the Caspian region.

LUKoil earned $500 million more than it invested in ACG, he said.

Fedun also said that LUKoil may team up with a strategic partner -- possibly a foreign company -- to bid for Slavneft.

No final decisions have yet been made, and LUKoil could enter the race alone, he said.

Fedun said LUKoil is in a better position to bid because it would not have to borrow. Sibneft and TNK have said they would have to borrow.

Kakha Kiknavelidze, an analyst at Troika Dialog, said Sibneft was the likely winner in the auction.

The company "is best set to consolidate Slavneft and already manages some of Slavneft's assets," he said. "But one should never discount the potential of companies like Surgutneftegaz, or, for that matter, LUKoil."

Sibneft and TNK both have minority stakes in Slavneft subsidiaries. Analysts have said that those stakes are a risk to any other oil company.

Fedun said that LUKoil was not discouraged by other oil majors owning minority stakes in Slavneft subsidiaries.

Kiknavelidze said the price of the stake is unlikely to jump much higher above the starting minimum. "The price of $1.7 billion is pretty high," he said.

Companies participating in the auction will have to pay 450 million rubles ($14.3 million) to enter the auction.