We Want to Stay in Russia, Bp Boss Tells Putin

The head of BP yesterday said that his company planned to expand its operations in Russia and deepen cooperation with state energy firms following a crunch meeting in the Kremlin with Vladimir Putin.

BP's chief executive Lord Browne emerged from his encounter with Russia's president declaring that he wanted to work together with Russia's leading energy producers. His statement appeared to win Mr Putin's cautious endorsement.

"This private company has been vigorously developing in Russia, where its reserves and production volumes have been growing," President Putin said, after the meeting with Lord Browne and his designated successor, Tony Hayward.

The meeting came after TNK-BP, which is half-owned by BP, said it would bid at an auction next week for 9.44% of the Russian state-controlled oil firm Rosneft. The auction on Tuesday will be part of the liquidation of assets from the bankrupt Russian oil firm Yukos.

The move took analysts by surprise. Many wondered whether the bid was merely an attempt to curry favour with the Kremlin. Lord Browne's visit to Moscow took place at a time of great uncertainty for foreign and private firms in the Russian energy sector.

Gazprom, the state-controlled energy producer, is already negotiating to buy its way into TNK-BP's Kovykta gas export project, having earlier forcibly acquired a stake in Shell's Sakhalin-2 oil and gas scheme in Russia's far east.

TNK-BP owns a 1.5% stake in Rosneft. If its bid next week were accepted, the company would control a 10% stake in the Kremlin-run company - and would be entitled to a seat on Rosneft's board.

Yesterday, however, experts familiar with the political realities in Russia said this would not happen. "No," Arytom Konchin, an oil and gas analyst at Moscow's Aton brokerage said, asked whether TNK-BP's bid might succeed against the odds.

Rosneft itself was certain to win the auction for Yukos's stake in its business, Mr Konchin said. The company was currently involved in a bitter struggle with its Russian state-owned rival Gazprom, he added, with the rivalry spilling over into different factions inside the Kremlin.

Under auction rules at least two bidders are needed for next week's auction to be valid. Yesterday, however, TNK-BP denied that it was bidding merely in an attempt to appease the Kremlin at a time when the future of its Kovytka project is uncertain.

TNK-BP plans to fund the bid from its own resources and with cash from its owners - BP and a group of Russian billionaires. A spokesman for Yukos's receiver confirmed that more than one bid had been registered. A source close to the process said TNK-BP had put up a $1.5bn deposit.

Rosneft did not comment on TNK-BP's bid, but said Rosneft president Sergei Bogdanchikov had met Lord Browne yesterday. "The two men discussed the issues of cooperation in project and shareholding spheres," spokesman Vladimir Voyevoda said.

Rosneft has lined up a $22bn (£11.2bn) jumbo loan from eight western banks to buy assets from Yukos. Yukos's former owner Mikhail Khodorkovsky is sitting in a Siberian jail after being convicted of fraud and corruption. Yukos shareholders say the Kremlin attacked the company to punish Khodorkovsky for his political ambitions. They have promised to sue any company buying its assets.

"There's a lot of risk attached to any western company getting involved in these auctions," said Tim Osborne, director of Yukos holding company Menatep. "Because they're in receipt of stolen goods, they can never get good title."

A source close to the auction process said TNK-BP's bid showed there would be real competition this time. "This is not some kind of strange legal entity with a postbox somewhere in Kamchatka," the source said.

Yukos's holding of Rosneft shares will be auctioned on Tuesday. The auction has a starting price of $7.47bn, against a market value of $8.86bn.

Rise and fall

Yukos emerged from the privatisation of former Soviet Union assets in the 1990s and at its height was one of the world's largest oil companies. It was run by Mikhail Khodorkovsky. He clashed with Putin over energy policy and provoked the Kremlin's wrath by channelling funds to opposition parties. Yukos won plaudits from the west for good corporate governance but the political pressure inside Russia grew and Yukos was presented with a series of multibillion-pound tax demands. Khodorkovsky was arrested in 2003. Rosneft bought Yukos's main production unit after a forced auction in 2004.