- The Washington Times - Tuesday, February 11, 2003

WASHINGTON, Feb. 11 (UPI) — British Petroleum PLC announced Tuesday a $6.75 billion investment in Russian oil, obtaining 50 percent of a merged company producing 1.2 million barrels a day. The new company will be Russia's third-largest oil and gas business.

BP is forming a joint venture with Access-Renova, or AAR, a Russian buyout company controlled by the Alfa Group. AAR is contributing to the joint venture its majority holdings in two Russian oil companies, TNK and Sidanco, its share of the refiner Rusia Petroleum, its stake in the Rospan gas field in West Siberia and its interest in the Sakhalin IV and V exploration license. BP will contribute its 25 percent holding in Sidanco, its minority stake in Rusia Petroleum, its interest in the Sakhalin V exploration license and its holding in the BP Moscow retail network. In addition, BP will pay AAR $3 billion in cash on completion of the deal and three annual tranches of $1.25 billion worth of BP shares, valued at market prices prior to each annual payment.

The new company is expected to have oil production of approximately 1.2 million barrels per day, exploration interests in Siberia and Sakhalin, five refineries and a retail network of more than 2,100 sites in Russia and the Ukraine.

BP estimates that the oil and gas resources of the new company are 5.2 billion barrels. By annual oil production, it will be Russia's third-largest company behind the domestically owned LukOil and Yukos.

The new company will be governed by a 10-member board, with members nominated equally by BP and AAR and decisions taken unanimously. AAR will nominate the chairman of the board and BP the chief executive and provide management and technical resources to the company. It has also been agreed between BP and AAR that they will apply "Western principles of corporate governance."

BP entered Russia in 1997, paying $485 million for 10 percent of Sidanco. In 1999, AAR, which had controlled TNK since a shares-for-debt privatization in 1995, attempted to seize Sidanco's major oil fields through bankruptcy proceedings. The case was settled with AAR returning the oil fields to Sidanco, receiving 25 percent of Sidanco in exchange, from its then-shareholder, the trading company Interros, controlled by tycoon Vladimir Potanin, and acquiring the other 49 percent of TNK from the Russian government for $90 million. BP thereafter came to a working arrangement with AAR, which also purchased Potanin's controlling stake in Sidanco for $1.1 billion in November 2001. In April 2002, BP increased its stake in Sidanco to 25 percent plus one share, for an additional $375 million.

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