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. Last Updated: 07/27/2016

Yukos Stake Goes to Rosneft

APReporters covering the Yukos shares auction Tuesday via a video screen inside the company's Moscow headquarters.
Rosneft extended its reach over the dismantled Yukos empire on Tuesday, winning back a block of its own shares in the first of a series of auctions to sell off the remains of the bankrupted oil firm.

It took 10 bids and 10 minutes for Rosneft's newly formed subsidiary RN-Razvitiye to cast the winning offer against a subsidiary of TNK-BP, its sole competitor for the stake.

The state-controlled firm won the lot, which included the 9.44 percent Rosneft stake held by Yukos, for 197.84 billion rubles ($7.6 billion) -- a fraction above the discounted starting price of 195.5 billion rubles ($7.5 billion).

"We are entirely happy with the results of today's auction," Rosneft spokesman Nikolai Manvelov said.

TNK-BP, which announced its intention to participate in the auction just hours before registration closed Friday, resigned itself quickly to defeat.

"We participated and made five or six serious bids, but in the end we weren't successful. So good luck to Rosneft," TNK-BP vice president Peter Henshaw said by telephone after the auction. "We bid until our limit and didn't go past it."

Rosneft was widely expected to emerge victorious, with analysts agreeing that the participation of TNK-BP was a symbolic gesture aimed at giving the process an air of legitimacy.

"It was an open process, one that followed the laws of the Russian Federation," Eduard Rebgun, Yukos' court-appointed bankruptcy receiver, said by telephone. "It went, thank God, normally."

Dozens of reporters were herded into a conference room at Yukos' headquarters to watch the auction, broadcast from a nearby room, on video screens.

Once the home of the country's largest oil company, the skyscraper now holds empty halls that used to be adorned with pictures of its former boss Mikhail Khodorkovsky.

Auctioneer Sergei Mishin oversaw the bidding as two representatives from RN-Razvitiye and two from TNK-BP subsidiary Samotlorneftegaz sat side by side at small desks, taking turns to raise their paddles in calm succession as the bids rose incrementally higher.

The men from TNK-BP quietly consulted each other before letting the winning bid -- just $100 million above the starting offer -- go to their competitors. The process was over soon after it had begun, brought to an end with the swift banging of the auctioneer's hammer and a loud sigh from Mishin.

"This was an open process," Rebgun's spokesman Nikolai Lashkevich told reporters afterward. "You can see this through the fact that several bids were made. There was real competition, and the company that offered the higher price won."

At $7.6 billion, Rosneft's winning bid for the lot, which also included 12 promissory notes in Yuganskneftegaz, was about 10 percent lower than its market value.

RN-Razvitiye, set up in January with just 10,000 rubles in starting capital, drew a $9 billion loan to finance the auction and is expected to sell off the stake within the year.

Manvelov, Rosneft's spokesman, said the company would use the 9.44 percent stake "as a strategic currency in exchange for oil and gas assets in Russia and abroad."

Rosneft shares fell 1.3 percent to 216.77 rubles ($8.34) at the close of trading.

Rosneft scooped up Yuganskneftegaz, once Yukos' most-prized asset and main production unit, at a December 2004 auction through an unknown company called Baikal Finance Group.

That purchase helped boost Rosneft from a mid-tier oil company to the country's second-largest. If it succeeds in buying Yukos units Tomskneft and Samaraneftegaz in auctions to be held within months, it would move close to surpassing private LUKoil as the country's main oil producer.

Lashkevich said the date for the Tomskneft and Samaraneftegaz auctions could be set at a creditors' meeting Friday.

Khodorkovsky has accused Igor Sechin, the chairman of Rosneft's board and President Vladimir Putin's powerful deputy chief of staff, of being behind the state's legal onslaught against Yukos.

Kremlin spokesman Dmitry Peskov denied that the Kremlin had a hand in Tuesday's auction.

"The auction itself and the participation of foreign companies in this auction, of course, was not organized by the Kremlin," he said. "We can hardly understand this criticism."

BP CEO Lord Browne met Putin on Friday as TNK-BP announced its intention to bid. The Russian-British company is facing pressure from environmental authorities over its flagship Kovykta field in East Siberia, as the state seeks to extend its control over the country's natural resources.

"We welcome foreign companies' interest in our market," Peskov said, adding that the TNK-BP venture shows "foreign companies can achieve significant success here."

Putin has made clear that foreign companies are expected to link up with Russian partners to exploit the country's lucrative energy resources.

"TNK-BP is a very experienced player in Russian waters," said Roland Nash, head of research at Renaissance Capital. "They realize that cooperation with the Kremlin is a good idea if you want to be active in Russian hydrocarbons.

"They are building up a stock of good will," he said.

Claire Davidson, a spokeswoman for Yukos' former managers, called the auction "controlled and rigged."

"The fact the lots that Mr. Rebgun is responsible for auctioning are arbitrarily discounted is proof that they are designed to favor the purchasers," she said. "There is no real title to this auction."

Davidson and Tim Osborne, director of Yukos shareholder GML, formerly known as Group Menatep, said they would not bring new lawsuits over the auction but that minority shareholders could consider legal action.

GML has filed a $28.3 billion suit in The Hague under the terms of the Energy Charter Treaty for what it claims was the illegal expropriation of Yukos. A first hearing is due to be held in June, Osborne said.

"If we are awarded damages by the Energy Charter Treaty claim and have any difficulties collecting, we could look at any Western company that would have benefited from receiving these stolen goods and go after them for it," he said.

Rosneft is Yukos' largest creditor after the Federal Tax Service. Khodorkovsky is serving an eight-year sentence on charges of fraud and tax evasion, and prosecutors filed new charges in February that could keep him in jail a further 15 years. Yukos was dismantled amid claims that it owed $33 billion in back taxes.

The next auction is set for April 4, when Yukos' 20 percent stake in Gazprom Neft goes up for auction along with two gas production units. Gazprom and a Russian-Italian consortium comprising Eni, Enel and ESN, a company owned by businessman Grigory Beryozkin, have said they will take part. Independent gas producer Novatek is also believed to be interested.