18 July 2005
Article in "The Moscow Times" on Sibir Energy case

Caribbean Court Targets Sibneft

By Lyuba Pronina

A court in the British Virgin Islands has ordered Russia's richest man, Roman Abramovich, to disclose all his assets valued over $1 million, a lawyer for Sibir Energy said Sunday.

Sibir Energy, a British-based oil firm, is seeking to recover a stake in a joint venture in Siberia that it claims Abramovich's Sibneft diluted without its knowledge.

In addition, the court order, dated July 13, prohibits both Abramovich and Sibneft from diminishing their assets to below a value of $1 billion each, Sibir Energy lawyer Dmitry Afanasyev said in a briefing.

The news comes at a time when Sibneft is widely believed to be in talks with Gazprom about a possible sale. Abramovich owns 57 percent of Sibneft through his Millhouse Capital holding.

Abramovich, estimated by Forbes to be worth $13.3 billion, and Sibneft were served injunctions by a British Virgin Islands court last week ordering them to provide the value, location and other details of all assets exceeding $1 million by July 22, Afanasyev said.

"This is a provisional measure to ensure that the defendants [Sibneft and Abramovich] have enough assets to cover potential liability in the event that Sibir Energy is be successful in getting a final judgment," Afanasyev said.

Sibneft spokesman John Mann said that the case was without merit.

"Mr. Abramovich is not an officer or director of Sibneft, and any lawsuit against him personally would be misguided," he said.

Mann said he had not seen the court order and would not comment further. "Unlike Sibir, we will not contest this in the press but continue our record of winning in the court of law."

Sibir Energy says that its stake in Sibneft-Yugra, a 50-50 joint venture, was reduced to less than 1 percent after Sibneft initiated secret shareholder meetings at which its stake was diluted.

Sibneft-Yugra, worth an estimated $4 billion, was set up in 2000 to develop the South Priobskoye oil field in Western Siberia.

Sibir contributed the licenses and Sibneft was to put up cash in excess of $300 million in development, Sibir CEO Henry Cameron said in the briefing.

The legal wrangle over Sibir's stake in Sibneft-Yugra first started in May 2004.

"Every court until now has ruled in our favor. In the past two weeks, we have won three court cases in Moscow and Khanty-Mansiisk," Mann said. "Sibneft operated in accordance with the law in its participation in the Sibneft-Yugra joint venture."

Sibneft has repeatedly denied any wrongdoing, saying that it had acted in line with an earlier agreement reached between Sibneft-Yugra's shareholders, including Shalva Chigirinsky.

Chigirinsky, a Moscow property and energy mogul, owns a 47 percent stake in Sibir Energy and is in the process of upgrading his holding to a controlling 51 percent stake.

Both Chigirinsky and Sibir Energy deny knowledge of any broader agreement.

Sibneft has also argued that only Russian courts should have jurisdiction over the dispute.

But by convincing a judge in the British Virgin Islands to hear the case, Sibir Energy is now within striking distance of Sibneft's assets, said Steven Dashevsky, head of research at Aton brokerage.

"This is the first serious and very positive news for Sibir Energy, as this is a court ruling made in a jurisdiction where companies affiliated with Sibneft are registered. Therefore, any court rulings [in the British Virgin Islands] carry serious enough legal consequences for Sibneft," Dashevsky said.

Sibir Energy's Afanasyev said that the British Virgin Islands was chosen because most of the Sibneft-linked offshore companies that took part in the share dilution were registered there.

"A B.V.I. court order is enforceable in the U.K., and if these [offshore] companies are registered in B.V.I., there will be immediate enforcement against their assets," said a Moscow-based British lawyer unrelated to the case, who requested anonymity due to the sensitivity of the suit.

"It could potentially be a problem for him [Abramovich] as he has a lot of business in the U.K."

Besides issuing the injunction, Afanasyev said, the court last week also ruled that a temporary receiver be named to hold the 49 percent in Sibneft-Yugra that used to belong to Sibir Energy.

Sibir Energy's timing does not come as a big surprise, Dashevsky said.

"[Sibneft-Yugra] is a fast-growing business, and by 2010 will account for 20 to 25 percent of Sibneft's entire production," he said.

"This complex of limitations [against Sibneft and Abramovich] is very important, especially in the context of ongoing negotiations between Sibneft and Gazprom."

Rumors that Gazprom was interested in buying out Sibneft were confirmed earlier this month, when President Vladimir Putin said that he was aware of such negotiations.

"Every potential buyer of Sibneft should be on notice that there is a serious legal problem [and] will have to decide whether they want to take the risks," said lawyer Afanasyev.

Sibir Energy's case against Sibneft is also being closely watched by Moscow City Hall, which controls Moscow Oil and Gas Co. Sibir Energy, which owns 31 percent of MOGC, had hoped to boost its stake in the company in exchange for its Sibneft-Yugra stake.

"We intend to go to the end in pursuing the return of our property," Yevgeny Savostyanov, first vice president of MOGC, said at the briefing.

The next hearing at the Eastern Caribbean Supreme Court in the High Court of Justice, British Virgin Islands, is scheduled for July 27, Afanasyev said