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CNPC drops Russian bid, ONGC joins race

CNPC has abandoned its plan to bid for TNK-BP's Russian oil unit Udmurtneft, while ONGC has formally joined the race.

india Updated: Feb 22, 2006 11:46 IST

China National Petroleum Corp has abandoned its plan to bid for TNK-BP's Russian oil unit Udmurtneft, sources said on Tuesday, while rival Indian ONGC has formally joined the race.

Sources familiar with the matter said CNPC had dropped the idea to bid in the belief it can never beat Russian rivals in the $3 billion auction.

Following discussions with its financial advisers, CNPC decided last week not to express interest in Udmurtneft last Friday, the deadline for the seller to receive first-round bids, the sources said.

"The expression of interest was due on Friday. They finally decided not to proceed," said one of the sources, who asked not to be identified.

CNPC believes Russian companies such as Sibneft and Russneft would put in more aggressive bids because an acquisition would create synergies with their existing portfolios, the sources said.

Sibneft, controlled by Russian gas giant Gazprom, has made a preliminary offer for Udmurtneft. Russneft, which has spent more than $800 million on TNK-BP assets already, is also bidding for Udmurtneft.

"According to our analysis, a Russian company will be the most probable winner in this transaction," said another source close to CNPC. A CNPC spokesman in Beijing declined to comment.

The Kremlin has recently tightened its grip on the oil sector and is trying to limit foreign involvement in the lucrative industry with repeated failures by CNPC or Indian state oil firm ONGC to buy Russian assets.

ONGC-Itera bid

ONGC, which is no less hungry for oil assets abroad than its Chinese rivals, is likely to have another go as Russia's mid-sized gas producer Itera said on Tuesday it had set up a venture with the Indian firm to jointly bid for Udmurtneft.

Itera said in a regulatory statement it would hold 51 per cent in the venture, while ONGC will hold the remaining 49 per cent.

CNPC, the parent of Hong Kong- and New York-listed PetroChina Co, also initially wanted to team up with a Russian firm for a joint bid for Udmurtneft to increase the chance of winning the asset, but it failed to find one, the sources said.

Udmurtneft, which started operation in 1969, produced 5.8 million tons of oil in 2004 and has reserves equivalent to around 1 billion barrels of oil. Some sources have said the asset carried an estimated value of around $3 billion.

China, the world's second largest oil consumer, has been unable to secure substantially higher supplies from the world's second biggest oil exporter because of Kremlin's suspicion over Beijing's rapidly-growing political and economic clout.

Indian firms enjoy closer cooperation with Russia, especially in the military sector, and ONGC has a 20-percent stake in a landmark oil project on Russia's Sakhalin island.

Deutsche Bank and UBS are the financial advisers for TNK-BP on the sale of Udmurtneft. TNK-BP is half owned by oil major BP Plc.

First Published: Feb 22, 2006 11:41 IST