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. Last Updated: 07/27/2016

BP, TNK End Feud And Split Sidanko




After more than a year's worth of wrangling, international oil giant BP Amoco has made peace with its comparatively tiny Russian tormentor, Tyumen Oil Co., or TNK.


In the second settlement this week between Russian oil firms and foreign investors, TNK has agreed to hand back the contested oil production unit Chernogorneft - which it bought at a controversial bankruptcy auction last month for $176 million - to its parent firm Sidanko, officials from TNK, Sidanko and major Sidanko shareholder BP Amoco said Wednesday.


"This agreement significantly strengthens the Sidanko oil company and fully reverses the adverse consequences of recent bankruptcy proceedings against Chernogorneft," BP Amoco vice president Ralph Alexander said. "We believe this agreement protects the interests of creditors and shareholders."


BP Amoco - which had called the Chernogorneft sale "seriously flawed" and said that it might pull out of Russia altogether as a result - will retain its 10 percent stake in the Sidanko oil holding, but its voting weight will be boosted to the 25-percent-plus-one-share stake necessary for a blocking vote.


The international oil giant will continue to provide senior management control to Sidanko and its subsidiaries, and it expects an amicable settlement soon for Sidanko to free the firm from bankruptcy. BP Amoco bought a 10 percent stake with 20 percent voting rights in Sidanko for $571 million in late 1997, but had to write down that stake to $371 million early this year.


TNK will gain a 25 percent plus one share stake in Sidanko in return for handing Chernogorneft back to the Sidanko oil holding, Sidanko and Tyumen Oil shareholders said Wednesday.


Chernogorneft will be returned whole and debt free - TNK having paid the debts when it bought the firm. The oil holding further plans to increase its participation in the subsidiary from current 73 percent to 100 percent.


"We view this transaction as beneficial to the long-term interests of both Tyumen Oil Co. and Sidanko shareholders," said Mikhail Fridman, chairman of Alfa Group, which effectively controls TNK in alliance with the Renova group. "We look forward to a mutually beneficial relationship with our new partners."


Sidanko shareholders must now approve new share emissions to allow for the restructuring of the still-bankrupt firm's shareholders. In addition to the stakes slated for TNK shareholders Access Industries, Renova and Alfa Group, Sidanko shareholders Kantupan Holdings and Interros - both associated with tycoon Vladimir Potanin - will each retain stakes of about 30 percent.


Presumably the voting rights from some of the shares from those stakes will be signed over to BP Amoco, although details were still sketchy on Wednesday.


Following the news that international investor Kenneth Dart has made his peace with Yukos, the Sidanko deal has helped to maintain the post-election optimism regarding Russian stocks and indeed the whole business environment.


The stock market surged again Wednesday for the third day running, hitting year highs. (See story, page 12.)


Both the Yukos dispute and the Sidanko battle had focused attention on some of the major flaws with Russia's legal system.


The Yukos dispute ended last week when Dart, who had protested planned share emissions in three Yukos subsidiaries that would have diluted his stakes, sold those shares back to the parent holding for an undisclosed sum.


After Sidanko and its subsidiaries had slid - or been pushed - onto insolvency, TNK effectively declared hostile takeover bids for insolvent Sidanko affiliates Chernogorneft and Kondpetroleum.


By manipulating the bankruptcy system and the courts, TNK - which defended its actions as legal - managed to acquire both firms at what were widely considered knock-down prices, through bankruptcy auctions decried by both Sidanko and BP Amoco as unfair.


Kondpetroleum was secured for $52 million in October, but TNK has still yet to secure fresh exploration and production licenses for either that firm or Chernogorneft.


The Sputnik Group, an investment firm with an indirect stake in Sidanko, has been TNK's main direct opponent, filing countless suits contesting the Chernogorneft sale - which it called "the theft of the century."


Frustrated at their inability to get anywhere through the Russian courts, some Sputnik shareholders launched cases in the United States courts against a U.S.-based TNK director.


Among the unresolved issues is a $500 million US Eximbank loan guarantee program for TNK, suspended Tuesday at the U.S. government's request.


The request has been linked both to world concern over Russia's Chechnya campaign and to BP Amoco's lobbying efforts with the U.S. government.


Part of the loan guarantee program was to be used to develop the giant Samotlor oil field under a production sharing agreement in West Siberia.


TNK subsidiary Nizhnevartovskneftegaz shares the Samotlor field with Chernogorneft, hence TNK's interest in the Sidanko subsidiary.


BP Amoco has also been pressuring the Russian authorities, asking them to prevent or possibly reverse the sales of Sidanko subsidiaries to TNK.


Prime Minister Vladimir Putin has decided to delay signing the production sharing agreement for Samotlor developed by TNK, until after the Chernogorneft bankruptcy procedure has been investigated, Nikoil brokerage reported.


Alfa Bank looks to have strengthened its hold on TNK after the results of a privatization auction for a 49.06 percent stake in the oil firm were announced Wednesday.


A formerly unknown firm, New Priorities won the tender with a $90 million bid, Igor Shuvalov, head of the Federal Property Fund, said Wednesday.


Little is known about New Priorities, which was founded by several similarly obscure front companies, but the firm's ban account is with Alfa Bank, Shuvalov said.


Interfax also reported that New Priorities is affiliated with Alfa and the Renova group - the Alfa Group ally that also has a stake in TNK.


Under the terms of the tender the winner must also invest $185.25 million in the oil company.