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New York Times: BP Plans to Bid for Yukos Assets in Auction

Published: March 24, 2007

MOSCOW, March 23 — BP said on Friday that it planned to bid against the state-owned oil giant Rosneft in a bankruptcy auction for assets of the Yukos oil company, a surprise announcement that signaled BP’s deepening involvement in Russia’s turbulent energy sector.

BP owns about $1 billion in stock in Rosneft, a company it considers a strategic partner. On Friday, BP’s chief executive, John Browne, was in Moscow to meet his counterpart from Rosneft and Russia’s president, Vladimir V. Putin, along with BP’s designated successor for the top job, Tony Hayward.

With the offer, BP is entering an auction process in a country with a history of troubled asset sales in such proceedings, beginning with the 1990s privatization auctions that are now widely thought to have been rigged.

Also, BP’s willingness to wade into the legal and political morass of the Yukos affair suggests the lengths Western oil companies will go to win access to scarce reserves, analysts said. In Russia, this has meant risking legal repercussions from working with state companies accused of nationalizing private assets.

BP is bidding in the auction Tuesday through a subsidiary of its Russian joint venture, TNK-BP, which is half-owned by Russian partners.

Yukos was declared bankrupt last August after Russian tax authorities pressed billions of dollars in claims that critics say were trumped up. The company’s former chairman, Mikhail B. Khodorkovsky, is serving eight years for tax evasion and fraud.

TNK-BP will bid for 9.44 percent of Rosneft’s stock — worth about $9 billion at today’s market prices — that is owned by Yukos. The starting bid, however, is $7.5 billion.

For the auction to meet Russian bankruptcy rules, at least two bidders must participate. Until Friday, only the Rosneft subsidiary had formally expressed interest and deposited $1.5 billion in an escrow account.

A TNK-BP spokeswoman, Marina Dracheva, insisted her company would bid competitively. Ms. Dracheva said TNK-BP was interested in Rosneft stock to deepen its strategic relationship with the company.

Still, some analysts speculated that TNK-BP had leant its name to the process to allow the auction to proceed in exchange for favorable treatment in other energy deals in Russia. TNK-BP, for example, is struggling to hold onto a large natural gas development in Siberia after the Kremlin threatened to revoke the license because the field was not developed quickly enough.

That threat was not taken lightly; in December, the Kremlin pressured Royal Dutch Shell over environmental issues until Shell sold a controlling stake in its Sakhalin II offshore Siberian oil and gas development to Gazprom at a steep discount.

“The easiest explanation is that they are the complementary bidder to facilitate the processes,” Chris Weafer, chief analyst at Alfa Bank, said in a telephone interview on TNK-BP’s role in the auction.

On Friday, the same day TNK-BP announced the offer, Mr. Browne of BP was in Moscow for his second visit in three weeks, prompting some criticism from former Yukos management.

Claire Davidson, a spokeswoman representing the overseas management of Yukos, said the meeting between the chief executives of Rosneft and BP — the only two bidders — so close to the auction date could create the appearance of collusion.

BP and Rosneft spokesmen declined to elaborate on what the pair discussed.

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