Russian Oil Firm IPO Ends Early

Foreign Interest in Rosneft Seen as Victory for Putin

On the eve of the Group of Eight meeting in St. Petersburg, President Vladimir Putin's government appeared to have notched a victory as institutional investors and international oil companies flocked to a stock sale by Russian state-owned oil company OAO Rosneft.

Rosneft ended its initial public offering for about 20 percent of the company a day early and appeared poised to raise about $11 billion, sources familiar with the deal said yesterday.

The Rosneft IPO has been widely cast as a test of international opinion on Putin and his government's moves to renationalize much of the oil industry and then woo foreigners into taking minority stakes.

Though some questions remained about the pricing of the deal, sources familiar with the offering said it appeared that Rosneft would be able to set the initial price for its shares toward the upper end of the range of $5.85 to $7.85 a share the company had said it was seeking.

BP PLC has decided to buy as much as a $1 billion stake, depending on the price, the sources added, confirming a report in yesterday's Financial Times. An analyst close to the company said in an interview that BP, which already has extensive holdings in Russia, "was interested for strategic reasons and was interested in demonstrating its commitment to Russia."

At the same time, said the analyst, who spoke on condition of anonymity to protect his relationship with the company, BP wanted to "ensure that the investment is a sensible one commercially" and could buy less depending on the final price.

Russia experts and oil analysts said they expected that most of the offering would be bought up by large international companies viewing the investment as a ticket into Russia's oil industry or as a lubricant for existing ventures in Russia. Other firms likely to emerge with substantial stakes include China National Petroleum Corp.; the Malaysian national oil company Petronas; and India's national oil company.

The offering by Rosneft, chaired by Igor Sechin, one of Putin's deputy chiefs of staff, has been controversial. About two-thirds of its oil production was bought indirectly for $9.3 billion in 2004 from OAO Yukos, which had been forced into bankruptcy by tax evasion charges. Yukos shareholders sought to block the Rosneft stock sale, but Britain's Financial Services Authority on Tuesday said it would allow the offering to go ahead.

BP and other Western oil companies might scale back any investments if the offering did not attract enough institutional investors to make a liquid market in the shares, said the sources, who insisted on anonymity because final decisions had not been made. BP has invested billions of dollars in Russia in exploration and production, pipeline construction, and marketing. Its biggest investment has been a 50 percent interest in TNK-BP Ltd., which has 1.82 million barrels a day of production, five refineries and 2,100 retail outlets.