Auction Opens Final Phase in Dismantling Of Yukos Oil

Kremlin-Controlled Rosneft Buys Stock at Sharp Discount

MOSCOW, March 27 -- The final dismemberment of Yukos Oil Co., the energy giant brought down by legal action widely seen as inspired by the Kremlin, began Tuesday in Moscow with the first in a series of auctions of its remaining assets.

The state-controlled oil company Rosneft purchased 9.44 percent of its own stock that was held by Yukos. The price was $7.6 billion, a 10 percent discount on the shares' market value.

Yukos held the Rosneft shares because Rosneft had used them last year to pay for the last of Yukos's stake in its once-richest asset, the Yuganskneftegaz oil unit, a complex of bountiful oil fields in western Siberia.

The entire asset is now worth close to $60 billion, and it has transformed Rosneft into a major energy player alongside Gazprom, Russia's other major state-controlled energy company.

Yukos was forced into bankruptcy by its creditors, including the Russian state and Rosneft, who have claimed more than $26 billion in outstanding back taxes and debts. Many analysts in Moscow see the long string of judicial actions against Yukos and its former chairman, Mikhail Khodorkovsky, as retaliation for his funding of political opposition activities.

A court-appointed receiver rejected assertions by Yukos that its assets were undervalued and that it could reorganize and pay its debts while remaining a going concern.

The receiver, Eduard Rebgun, is now being considered for a position on the board of Rosneft, according to the company, which is chaired by Igor Sechin, President Vladimir Putin's deputy chief of staff.

The assault on Yukos has coincided with a still-widening campaign by the Kremlin to bring the country's energy resources back under state control.

"The state has completely stamped its authority across the energy sector," said Chris Weafer, chief analyst at Alfa Bank in Moscow. "After Yukos, the message is clear: When the state comes calling, it's only a question of what's the best deal you can get. You can't refuse."

One of the remaining prime assets of Yukos, a 20 percent stake in a major Gazprom subsidiary, will be auctioned off next month. Gazprom is widely expected to prevail. Further auctions will include the selling off of Yukos refineries.

Yukos shareholders have condemned the auctions as little better than state-sanctioned theft. "The whole thing is a sham," Tim Osborne, a director of Group Menatep, a majority shareholder in Yukos, said in a telephone interview from London. "They are in receipt of stolen goods."

The losing bidder Tuesday was a subsidiary of TNK-BP, a Russian-British venture. Some analysts have accused BP of lending legitimacy to Tuesday's auction in return for relief on one of its major investments in Russia, the Kovykta gas field, which is under regulatory pressure. Gazprom reportedly wants to buy into the project.

On Friday, the head of BP, John Browne, and his designated successor, Tony Hayward, met with Putin. On the same day, TNK-BP announced that it would take part in Tuesday's auction. Without a second bidder, the auction would not have been legal.

For TNK-BP, participating and losing was perhaps the ideal outcome. Yukos shareholders have threatened to pursue in the courts any Western company that acquires Yukos assets.

TNK-BP denied that there was any quid pro quo. "It's quite clear that getting this package could have strengthened our relations with Rosneft and assist our further cooperation," said Alexander Shadrin, a spokesman for TNK-BP.

For the Kremlin, said analyst Weafer, TNK-BP's participation showcased the continued willingness of international oil companies to cooperate with the state despite criticism surrounding the Yukos and Khodorkovsky cases. Weafer said he expects other international energy companies to play the part of losing bidder in future Yukos auctions.

The auction took place in the Yukos headquarters where Khodorkovsky once had an office. Formerly Russia's richest man, Khodorkovsky is serving an eight-year prison sentence for tax evasion and fraud.