Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Yukos Takes Rosneft To No. 1

MTRepresentatives of Rosneft, left, and Unitex holding up their paddles at the same time during the Tomskneft auction.
Rosneft achieved its goal of becoming the country's largest oil company on Thursday as it scooped up Tomskneft, Yukos' penultimate oil unit to go under the auctioneer's hammer.

In 15 minutes of sometimes-confused bidding, a Rosneft subsidiary beat out a challenge from a mystery firm thought linked to Gazprom, buying Tomskneft and other assets for $6.8 billion, just $350 million over the starting price.

The purchase of Tomskneft, with output of about 230,000 barrels per day, boosts Rosneft to about 1.9 million bpd, jumping ahead of LUKoil with 1.8 million bpd.

The acquisition of Yukos assets in a series of forced state auctions has enabled Rosneft to rise from relative obscurity to challenge global giants such as ExxonMobil and BP.

Rosneft second-tier subsidiary Neft-Aktiv cast a winning bid of 175.7 billion rubles ($6.8 billion) for the lot, which also included two large refineries, the East Siberian Oil Company and stakes in several small power and distribution companies.

It beat out a mystery company called Unitex, which was widely believed to be fronting for Gazprom and has acted for Gazprom ally Novatek in a past auction.

Rosneft's winning bid came amid slightly chaotic bidding, after both bidders at times held up their paddles simultaneously.

"It was a real, competitive struggle," Nikolai Lashkevich, spokesman for bankruptcy receiver Eduard Rebgun, said after the auction. "The participants seriously fought for these Yukos assets."

Rosneft spokesman Nikolai Manvelov welcomed the victory and denied speculation that the company had signed a deal with Gazprom to hand over the oil production units, Tomskneft and East Siberia Oil Company.

Rosneft has said it hopes to boost oil production to 2 million bpd -- up to 2.5 bpd over time. The acquisition of Tomskneft, and of Samaraneftegaz at a Yukos auction next week, would allow it to follow through on that goal almost overnight.

Yet Gazprom was also believed to be interested in the assets, possibly using Unitex as a proxy firm for its own bid amid concerns over legal action.

At an auction for gas assets last month, Gazprom signed a call option with Italy's Eni and Enel, who beat out Rosneft subsidiary NeftTradeGroup to win the lot. Unitex also took part in that auction, dropping out after two bids.

Gas producer Novatek, which is 20 percent owned by Gazprom, had signed a call option with Unitex during that auction, Novatek spokesman Mikhail Lazov said Thursday. No such deal was made for the Tomskneft auction, he added.

Neither Lashkevich nor Alexander Komarov, a spokesman for the Federal Property Fund, which organized the auction, would say who was behind Unitex.

Gazprom could not be reached for comment.

Bidding at Thursday's auction appeared competitive, if lacking in coordination. Unitex started the process by accepting the starting bid of 166.34 billion rubles ($6.54 billion).

The company's lone representative then in effect bid against himself, raising his paddle as the two representatives from Rosneft subsidiary Neft-Aktiv did the same for the next bid.

The auctioneer's committee, comprising six people, accepted Neft-Aktiv's bid and continued with the process. The Unitex representative made the same mistake three more times, before bidding fell into a more organized pattern.

No Rosneft or Unitex representatives could be discerned in the crowd of spectators, mostly reporters, who watched the auction via a video link in a separate room at Yukos headquarters in central Moscow.

Several men in dark suits quickly rushed from the room upon the end of bidding. All denied that they belonged to either company.

The Yukos building, once the centerpiece of Mikhail Khodorkovsky's vast empire, now stands nearly empty and is due be sold later this month as the final curtain is drawn on what was once the country's largest oil company.

The last major Yukos auction will be held on May 10 with the sale of Samaraneftegaz, which produces around 200,000 bpd.

Rosneft plans to bid in that auction, and Gazprom is also believed to be interested.

Tomskneft and Samaraneftegaz were initially expected to be sold off together, and the split has prompted some analysts to speculate that a behind-the-scenes deal was struck to let Rosneft and Gazprom make off with one production unit each.

"Next week's auction will be the most interesting we've had until now," said Chris Weafer, chief strategist at Alfa Bank. "The fact that the auction was delayed and then split does suggest some sort of King Solomon solution," he said, adding however that "Rosneft has made no secret it wants both."

Rosneft's latest victory signals that the state is eager to ensure that Rosneft reigns over oil and Gazprom over gas, said Cliff Kupchan, a senior analyst at risk consultancy Eurasia Group.

Many analysts have warned Gazprom of overstretch, as the gas giant gobbled up assets in sectors as diverse as oil, media and football while gas production stagnates.

The Tomskneft victory signals that the Kremlin wants to see "a greater segregation of oil and gas assets than many expected," Kupchan said. "These auctions are clearly very heavily controlled by the Kremlin to avoid competition. There are no accidents here."

Weafer said that Rosneft's oil production is set to grow even higher as production is boosted at Tomskneft to levels not seen since before the state went after Yukos in mid-2003. Tomskneft and Samaraneftegaz together used to produce 650,000 bpd, he said.

Al Breach, chief strategist at UBS, did not rule out the idea that Tomskneft could end up going to Gazprom.

"Rosneft is bidding in these auctions and Gazprom never has. But that doesn't mean they won't come out the winner, as they did with Eni and Enel," he said.

n Promregion Holding, a company thought to have links to LUKoil, won a smaller auction earlier Thursday for various Yukos assets in southern Russia, including a 49.8 percent stake in the Caspian Oil Company, Itar-Tass said.