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. Last Updated: 07/27/2016

Rosneft Agrees to Pay $600M for 100% of Severnaya Neft

Rosneft, the sole oil major still in state hands, said Wednesday it is paying $600 million for a 100 percent stake in controversial crude and natural gas producer Severnaya Neft.

"The purchase of this asset is related to Rosneft's long-term plans to boost oil and gas production and enlarge its business," Rosneft said in a statement.

By snapping up former Deputy Finance Minister Andrei Vavilov's company, Rosneft is getting hold of 15 licenses to fields holding a total of 120 million tons of extractable hydrocarbon reserves. More than half of this volume, 65 million tons, is in the disputed Val Gamburtseva oil fields, a source of bitter court battles between Severnaya Neft on one side and the Natural Resources Ministry and leading oil companies such as LUKoil on the other.

Severnaya Neft won a much-debated tender for the licenses in March 2001. Since then, the Natural Resources Ministry has been trying to annul the results of the tender, which it organized itself, although under a different ministry.

LUKoil recently vowed that it would not give up the fight, neither for the fields nor its stake in Severnaya Neft, which it claims Vavilov illegally diluted.

But the appearance of Rosneft on the scene could very well end the dispute. The Economic Development and Trade Ministry has stepped in to lobby the Supreme Arbitration Court on behalf of Severnaya Neft and its new owner, Vedomosti quoted Deputy Minister Mukhamed Tsikanov as saying last week.

Created in 1994, Severnaya Neft produced close to 1.5 million tons of crude oil in 2002. Its reserves will boost Rosneft's own by nearly 10 percent.

Rosneft also said Wednesday that adding Severnaya Neft to its assets should strengthen the company's position in the oil- and gas-rich Timano-Pechora region of north European Russia, where it already holds a 25.5 percent stake in the Arkhangelskgeoldobycha oil and diamond company and 20 percent of Polyarnoye Siyaniye, a gas exploration venture with Gazprom.