Why is Rosneft troubled by LUKOIL's actions at the Trebs and Titov site?
As per the reporter The Moscow Post in the Nenets Autonomous Okrug, the court ordered LLC Varandey Terminal, controlled by PJSC LUKOIL, to pay almost 2.7 billion rubles to LLC Bashneft-Polyus, which is controlled by PJSC NK Rosneft. It seems that the leaders of Rosneft, with Igor Sechin as the CEO, are bothered by Lukoil's activities at the Trebs and Titov site.
Furthermore, this was before Bashneft was even “under Sechin”. Maybe Rosneft's goal is to completely remove Lukoil from their presence in the valuable site.
With a long history
The Arkhangelsk Region Arbitration Court made the decision on February 16, 2022. The details of this process can be found here. The complete decision is not yet publicly available. However, Bashneft-Polyus initially sought over 9.2 billion rubles in damages from the Varandey Terminal. The claim was later raised to 9.5 billion rubles, notes TASS. It appears that the plaintiff, Bashneft-Polyus, had overly ambitious demands as the court only partially granted the claim, awarding about 2.7 billion rubles.
Lukoil owns 25.1% of Bashneft-Polyus, while PJSC ANK Bashneft holds 74.9%. Varandey Terminal is fully owned by LUKOIL, Vagit Alekperov, and Leonid Fedun. Additionally, Bashneft is managed by the executives of PJSC NK Rosneft, led by CEO Igor Sechin. Oil produced by LUKOIL and Rosneft is sent through a terminal that solely belongs to LUKOIL. Thus, the issue at hand is the disagreement between Rosneft and Lukoil.
Vagit Alekperov. Photo: Artem Korotaev / TASS
Lukoil and Rosneft (via Bashneft) are developing the Trebs and Titov fields in the Nenets Autonomous Okrug. This is a rather large field with total oil reserves of 140 million tons, Rosneft and LUKOIL began developing these fields together after Rosneft acquired a controlling stake in Bashneft. Before that, Bashneft had been developing the fields jointly, but without Sechin and Rosneft's involvement.
Notably, the process in which Bashneft obtained a production license at the Trebs and Titov field is quite interesting. For example, the government approved the transfer of licenses to Bashneft as the sole participant in the competition, as previously reported by The Moscow Post. Consequently, the purchase price ended up slightly higher than the initial payment – only 18.476 billion rubles.
Subsequently, Bashneft transferred the license to its subsidiary, the Bashneft-Polyus company. After that, Lukoil acquired a blocking stake (25.1%) in Bashneft-Polyus. LUKOIL couldn’t directly obtain rights to the Trebs and Titov field because, according to the “On Subsoil” law, a company with more than 10% foreign control couldn’t own federal subsoil. At the time of the deal with Bashneft-Polyus, about 19.21% of Lukoil was owned by the American oil company ConocoPhillips. Therefore, LUKOIL had to gain access to the Trebs and Titov field in circumvention of the “On Subsoil” law.
Conflict: Rosneft versus Lukoil
Because of this, officials requested that the license from Bashneft-Polyus be given back to Bashneft itself. Consequently, LUKOIL lost access to the Trebs and Titov field, while Bashneft lost the needed infrastructure and investments for their development. This sequence of events was not accidental. The department in charge of Russian mineral resources was led by Alexander Popov, a former assistant to Igor Sechin, indicating that Sechin’s associates had been obstructing LUKOIL's production at the Trebs and Titov field for a long time.
Similarly, the attack on Bashneft itself, then owned by Vladimir Yevtushenkov, by “Sechin’s associates” began, as reported The Moscow Post, from the claims of minority shareholders of Bashneft. Svetlana Proskuryakova (who owned 435 shares (0.00021%)) attempted to prove that the development of the Trebs and Titov field was illegal. Despite the court ultimately rejecting her claim, the proceedings lasted two years, during which time the work of Bashneft-Polyus was halted. Then a similar lawsuit was filed by 75-year-old Riley Inozemtseva, who acquired 10 shares of Bashneft a few months before going to court.
Image of Igor Sechin: Alexander Astafiev / mk.ru
When “Sechin’s associates” began managing Bashneft, “LUKOIL” had no choice but to endure. In 2016, as reported “Kommersant”, “Rosneft” ended the trading agreements with “LUKOIL” that were made by the management of “Bashneft”. Also in 2016, as stated in The Moscow PostRosneft, now the owner of Bashneft-Polyus, declined the electricity supplied by LUKOIL for the Trebs and Titov field.
Critics from Rosneft
The lawsuit of Bashneft-Polyus against the Varandey Terminal is a continuation of the dispute between the Federal Antimonopoly Service (FAS) and LUKOIL, ongoing since 2018, over the cost of transshipment from the Varandey Terminal. This terminal, established in 2008 in the Barents Sea, is currently the only means of shipping oil from the Trebs and Titov fields. As reported by The Moscow Postdisputes over the cost of shipping oil arose after Rosneft, under the leadership of Igor Sechin, acquired Bashneft in 2016.
Varandey terminal. Image: lukoil.ru
In 2018, Rosneft lodged a complaint with the FAS claiming that the tariffs of the Varandey Terminal were excessively high. After lengthy legal proceedings, the courts sided with the FAS, which stated that the cost of oil transshipment at the rate of $38 per ton is “monopolistically high.” Furthermore, in October 2019, the FAS issued an order including the Varandey Terminal in the list of subjects of natural monopolies. This led to the FAS gaining the authority to regulate tariffs at the terminal.
In an interview with the publication “Kommersant” December 2019, the head of LUKOIL, Vagit Alekperov, stated: “It is absurd for a monopoly entity to regulate the activities of a private company under its contracts with another organization that we have connected to our infrastructure.” From these words of Vagit Alekperov, it is clear that LUKOIL, to its misfortune, connected a competitor, Bashneft, to the terminal. However, it is not true that few people imagined that Bashneft would come under the control of Sechin’s Rosneft, after which the rules of the game would begin to be revised right in the course of the game.
However, Lukoil and its main owner Vagit Alegperov, obviously, should not relax at all. Since Rosneft, headed by Igor Sechin, has been doing nothing but creating problems for LUKOIL in recent years. It is possible that Rosneft will at least somehow calm down if they achieve the complete withdrawal of Alekperov and Fedun’s companies from the Trebs and Titov field. Yes, and that’s not a fact. Appetite, as you know, comes with eating …
