Russian Billionaire’s Bashneft Poised for Arctic Oil

OAO Bashneft, the oil company controlled by Russian billionaire Vladimir Yevtushenkov, may increase its reserves about 70 percent after getting a clear run at two of Russia’s largest undeveloped fields.

Bashneft became the only bidder for Trebs and Titov fields in Russia’s Arctic when OAO Surgutneftegas failed to make a necessary cash deposit, a spokeswoman at Russia’s natural resources ministry said yesterday, declining to be identified because of internal policy.

Yevtushenkov has built Russia’s fastest growing oil company from Soviet-era fields by using his purchasing power to resolve politically sensitive ownership disputes. His AFK Sistema group has spent more than $3 billion buying shares in Bashneft and OAO Russneft. Output at Bashneft has jumped 25 percent since he took control last year.

The Trebs and Titov oilfields, discovered in the Soviet era, may hold more than 200 million metric tons, or 1.47 billion barrels, of recoverable oil reserves, according to the government. That compares with the 2.13 billion barrels of proven, possible and probable reserves Bashneft said it held in the second quarter of 2010, citing an audit from Miller & Lents Ltd.

Yevtushenkov, Russia’s 13th richest man with a $7.5 billion fortune according to Forbes, controls OAO Mobile TeleSystems, Russia’s largest mobile phone operator, and is championing a push by Prime Minister Vladimir Putin to make the Glonass satellite navigation project compete with the U.S. Global Positioning System.

Tender Process

Bashneft, which still has to pass through the ministry’s tender process, will likely get the fields, Oleg Maximov, Valery Nesterov and Alex Fak, oil and gas analysts at Troika Dialog, wrote in research yesterday.

“The fields’ net present value, estimated at $1.3 billion in our view, contributes about 15 percent to the company’s market cap and represents a free option on Bashneft stock and the market has somehow yet to appraise this,” the analysts said.

Bashneft has submitted the necessary documents and deposits for the tender and aims to win the fields, a company spokeswoman said.

The ministry in September said it rejected bids from OAO Lukoil and TNK-BP, Russia’s second- and third-largest oil producers, as well as OAO Gazprom Neft and India’s Oil & Natural Gas Corp.

Additional Capacity

Lukoil and ConocoPhillips’s OOO Naryanmarneftegaz venture owns the only infrastructure in the area, a pipeline passing by the deposits to the Varandei export terminal that loads tankers bound for western Europe and the U.S. among other areas. Both the terminal and pipeline have the capacity to handle additional oil, said a Lukoil spokesman who declined to be identified, citing company policy.

“If the government had decided whom it wanted to develop the field, it should have passed a directive to give them the asset,” Leonid Fedun, Lukoil’s deputy chief executive, said on Oct. 6. “That’s within the law and the state’s right. Here we had a tender announced and the way it was conducted wasn’t pretty to say the least.”

Under the terms of the tender, the winner must refine at least 42 percent of the output at its own plants and sell at least 15 percent of the oil products via a Russian commodities exchange.

Sistema’s target is to create a business valued at more than $10 billion, Alexander Korsik, the group’s head of oil, said in an interview last month.

Ownership Clash

Bashneft has gained 60 percent this year, raising its market value to $7.1 billion, while the RTS index in Moscow has advanced 9.8 percent.

Sistema took control of Bashneft last year, ending an ownership clash between the federal government and Bashkortostan region. The former leader of the Urals Russia region, Murtaza Rakhimov, sold the energy assets to structures with undisclosed ownership in 2003.

“Russia’s political elite, for whatever reason, have chosen Sistema as an agent of compromise to resolve disputes and so far Sistema is adding value,” said Igor Kurinnyy, an oil analyst at ING Groep NV.

Sistema aims to boost combined output at Bashneft and Russneft, in which it owns 49 percent, to about 600,000 barrels of oil a day in the next several years from 550,000 barrels now, Korsik said. Bashneft’s total refining capacity is 600,000 barrels a day. Korsik’s estimates exclude potential gains should Bashneft win the Arctic fields.

State-run OAO Rosneft, Russia’s largest oil producer, did not place a bid for the fields after previously expressing interest.

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