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. Last Updated: 07/27/2016

Russneft Chief Blames State for His Ouster

The head of Russneft said Monday that months of state pressure had prompted him to sell the embattled oil company to rising, Kremlin-friendly oligarch Oleg Deripaska.

"Not everyone has liked Russneft's success," CEO Mikhail Gutseriyev said in a letter published in the company's internal magazine.

"I was invited to leave the oil business 'on good terms.' I refused. Then to make me more compliant, the company was subjected to unprecedented hounding," Gutseriyev wrote.

Russneft's board of directors approved Gutseriyev's resignation late Monday, the company said in a statement. Senior vice president Oleg Gordeyev was appointed acting president.

"Mikhail Gutseriyev is temporarily stopping his entrepreneurial activities, leaving all business projects and intends to undertake scientific activities in Russia," the statement said.

Gutseriyev formed Russneft in 2002, after leaving state-run oil firm Slavneft and subsequently buying its assets on the cheap. He has since grown the company into Russia's seventh-largest oil producer, pumping 300,000 barrels of oil per day.

Then last year, tax and legal authorities began slapping the company and its shareholders with lawsuits as the Kremlin tightened its grip on the country's energy sector by means often criticized as lacking transparency.

Basic Element, Deripaska's holding company, confirmed on Monday that it had asked the Federal Anti-Monopoly Service for approval to buy Russneft.

Neither Russneft nor Basic Element would comment on the details of the sale. Vedomosti on Monday cited a source close to Deripaska as saying the two sides had agreed last week on a $6 billion price tag, while sources close to Russneft told the newspaper that the price had been set at $9.6 billion.

Gutseriyev, worth an estimated $2.9 billion according to Forbes, will receive a payout of $3 billion, Vedomosti said. He is estimated to own 70 percent of the privately held company.

Deripaska, Russia's second-richest man and the Kremlin's favored oligarch of the moment, will pay off the $2.8 billion debt that Russneft owes Glencore, the Swiss-based commodity trader that helped finance the firm's expansion, the newspaper said.

Glencore already has links to Deripaska, having merged its aluminum assets with Deripaska's Russian Aluminum and Viktor Vekselberg's SUAL earlier this year. That merger created United Company RusAl, the world's largest aluminum company.

RusAl plans to carry out an initial public offering this year, as Deripaska seeks to shake off a controversial reputation forged during the aluminum wars of the 1990s.

If Basic Element's request is approved, it will merge the firm into its En+ energy unit, Basic Element said in a statement. The holding also manages Deripaska's metals, automobile, construction and property assets.

Deripaska has proven his loyalty to the administration of President Vladimir Putin. "I don't separate myself from the state," he told The Financial Times earlier this month, adding that he would give up RusAl if the Kremlin asked him to.

Analysts said Deripaska could hold Russneft before passing it on to state-controlled oil giant Rosneft, which is heavily in debt. The firm has borrowed more than $25 billion this year alone.

Rosneft spokesman Nikolai Manvelov said the company was not interested in buying Russneft from Deripaska.

Rosneft spent hefty sums scooping up assets that once belonged to Yukos. The purchase of two Yukos production units at forced bankruptcy auctions this year propelled it to the top spot among Russian oil producers.

Yukos was felled by over $30 billion in back tax charges and CEO Mikhail Khodorkovsky was jailed for eight years on charges of fraud and tax evasion.

Gutseriyev hinted in his letter that he hoped to avoid a similar fate.

"I have taken the decision to quit our company. I hand control of the holding to a new owner whose appearance, I am sure, will ensure that all Russneft's problems will be resolved in time," Gutseriyev said.

He accused the country's "financial and power structures," including the Prosecutor General's Office, the Interior Ministry and the Federal Tax Service, of carrying out an unprovoked attack against the company.

"I don't know what I am guilty of and where I made mistakes" in drawing their ire, Gutseriyev said in the letter.

The Kremlin was believed to be unhappy with Gutseriyev for seeking several Yukos assets without its approval, but Russneft said last week that it had dropped its interest after receiving requests from Gazprom.

The Federal Tax Service had brought a total of eight lawsuits against 11 companies that are or have been shareholders in Russneft. In May, Gutseriyev himself was charged with fraud, and in June, tax authorities froze some of the company's shares.

"This whole affair, including Gutseriyev's claim that he was forced out of the company through the combined effort of state agencies ... could cast a shadow over investors' perceived sentiment as to the business environment in the Russian oil and gas industry," UBS warned in a research note.

Gutseriyev's exit comes fresh on the heels of TNK-BP's decision to sell its share in the Kovykta gas project to Gazprom, after months of pressure from the Natural Resources Ministry. Shell, Mitsui and Mitsubishi sold a majority stake in the Sakhalin-2 oil and gas project to Gazprom after a similar campaign late last year.

"The government is moving toward increasing the state share of production," said Julia Nanay, a senior analyst at PFC energy. "Russneft has been high profile, with aggressive goals to grow its output," she said.

Gutseriyev said last year that the company was seeking to raise net income to $1 billion this year by producing 20 million tons of crude. The company was also considering an initial public offering.

Analysts say the state's increased activity in the energy sector shows it hopes to consolidate control over the industry ahead of presidential elections in March.

According to Alfa Bank, the state currently controls 44 percent of the country's oil production, if Russneft is included.

Russneft owns 30 production assets, three refineries and 300 petrol stations, the company's web site said.