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. Last Updated: 07/27/2016

TNK Joins Race for Control of Slavneft


Simon Kukes

Tyumen Oil Co. has officially entered the Slavneft sweepstakes, publicly confirming for the first time its intention to participate in the largest privatization tender of the year.

Simon Kukes, the president of Tyumen Oil Co., or TNK, told the Financial Times in an interview published Tuesday that his company, the nation's fourth-largest crude producer, would submit a bid for the government's 74.95 stake in Slavneft within two weeks.

Kukes declined, however, to say whether TNK would bid alone or with a partner.

"There are a lot of possibilities but I cannot say any more at the moment," he said.

The State Property Fund has set a minimum price of $1.3 billion for the stake, but analysts say competition from other oil majors could push it into the $2 billion range.

The nation's top three producers -- LUKoil, Yukos and cash-rich Surgutneftegaz -- are rumored to be preparing bids, but all have refused to commit one way or the other, leaving No. 5 Sibneft and now TNK the only declared bidders.

"We are interested in participating in the action," Sibneft spokesman John Mann said Tuesday. "But we recognize the fact that we will not be the only company interested."

Like Kukes, however, Mann declined to say whether a joint TNK-Sibneft bid was in the works, a move analysts say would be logical.

Timerbulat Karimov, oil and gas analyst at the Aton brokerage, said a joint bid for Slavneft, which accounts for just over 4 percent of Russia's crude output, would make sense for both companies, particularly since they already have an existing partnership.

The two oil majors already jointly hold a 13 percent stake in Slavneft via an investment trust, and TNK controls some 40 percent of Slavneft subsidiary Megionneftegaz, which accounts for 80 percent of Slavneft's total production.

In addition, the two companies recently announced the creation of a strategic partnership in which Sibneft will receive an 8.6 percent equity stake in offshore company TNK International Ltd., the main shareholder in the TNK and Onako oil holdings. In exchange, TNK will get 40 percent of Orenburgneft, Onako's main operator.

Sibneft and TNK have also been actively raising funds by securing loans, in Sibneft's case, or, like TNK, placing debt paper abroad, which could indicate that both oil majors are readying themselves for the purchase, Karimov said.

The date for the tender has not been set, but Prime Minister Mikhail Kasyanov said Tuesday it would definitely be before the end of the year.

"The sale of the stake will take place in mid-December, but no later than Dec. 20," Kasyanov said.

State Property Fund chairman Vladimir Malin said in a press release Tuesday that the government is working "to make the auction transparent and the details about the item on sale maximally open."

The other significant Slavneft shareholder is the government of Belarus, which owns 11 percent.