UK oil firm faces £100m hit as Abramovich deal turns sour

Sibir Energy, the AIM-listed oil group, is facing a possible £100m write-down after a Russian joint venture with Roman Abramovich's Sibneft oil giant turned sour. The venture, called Sibneft-Yugra, was established in 2000 to explore oil reserves of the Priobskoye field in Siberia and it accounts for about 20 per cent of Sibir's total assets.

According to City sources, Sibir's 22.5 per cent holding in the venture has been "significantly diluted" by the mysterious issue of new shares. As a result of this move, Sibir now finds itself with a tiny shareholding - some say less than 1 per cent - in Sibneft-Yugra and financial sources claim it has been left out of pocket.

Last week, Sibir asked for its shares to be suspended from trading on the London stock market,"pending clarification of certain arrangements" relating to its interest in the Sibneft-Yugra joint venture. The shares were suspended at 28p, valuing the group at £489m.

It is thought that a shocked Sibir only found out about the change in the ownership structure a couple of weeks ago. The news will also raise questions about the level of controls that Sibir had put in place to manage the venture, oil industry experts said.

Sibir is believed to be trying to speak to its major shareholders before issuing a further statement and resuming trading in the shares. Shareholders include Nicholas Berry, a member of the family that used to own The Daily Telegraph.

Henry Cameron, the chief executive of Sibir, said: "The shares have been suspended to avoid a potential false market. We've agreed with the market authorities that we will make a full clarificatory statement as soon as we are in a position to do so. Everyone here is working flat out to achieve a satisfactory outcome and an end to the uncertainty."

He declined to detail the exact nature of the problem or its implications for Sibir shareholders.

Sibir owns its stake in Sibneft-Yugra via its shareholding in Moscow Oil & Gas Company (MOGC), which owns 50 per cent of Sibneft-Yugra. Sibir owns 45 per cent of MOGC, while the remaining 55 per cent is held by the Moscow city government, which also seems to have been disenfranchised as a result of the change in the shareholding structure.

Although Sibneft is controlled by Mr Abramovich, the owner of Chelsea Football Club, it is not clear whether he has personally been made aware of the nature of the dispute, which might end up in the Russian courts. Mr Abramovich is thought to be keen to sell a stake in his Sibneft group to an international oil company and may not welcome any adverse publicity from a dispute with Sibir, analysts said.

Sibneft's spokesman John Mann said yesterday: "Sibneft's shareholding in the Sibneft-Yugra joint venture was and remains 50 per cent as will be disclosed in the company's next quarterly report." Mr Mann declined to say who owns the other 50 per cent of the business. "You'll have to ask Sibir," he said.

Sibir has been in conflict with Sibneft for some time over the joint venture. As long ago as the 2002/03 annual report, Sibir warned its shareholders that it was having to revise the way it treated Sibneft-Yugra in accounting terms. Sibir complained that Sibneft was refusing to supply any operational or financial information to its partners.

One oil analyst in London said: "The implications of this are a bit broader than just Sibir. Over the last few years, more confidence has grown about doing business in Russia. People will be surprised that this sort of thing still goes on in Russia."

Sibir has reserves equal to 713 million barrels of oil; in 2003, it was producing 4,778 barrels a day. It is forecasting production of 6,380 barrels per day this year, rising to 12,258 next year and 53,550 barrels per day in 2006.

Its stated strategy is to structure itself as a "unique and robust Russo-Western partnership" to take advantage of major opportunities in Russia not available to Western investors. It has partnerships with BP and Shell.