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Sunday Telegraph: Sibir comes in from the cold: “Simon Bell reports from Salym, western Siberia, as the first oil gushes from a giant new field”: “On Friday afternoon the first oil gushed from the remote oilfield of Salym in western Siberia, jointly owned by the giant Royal Dutch Shell and the British minnow Sibir Energy.”: Sunday 27 November 2005

 

Simon Bell reports from Salym, western Siberia, as the first oil gushes from a giant new field

 

On Friday afternoon the first oil gushed from the remote oilfield of Salym in western Siberia, jointly owned by the giant Royal Dutch Shell and the British minnow Sibir Energy. It was the triumphant culmination of a nine-year fight by Sibir's small management team against huge natural, commercial and political odds in Russia.

 

The prize, celebrated on Friday night with a cake in the shape of the oilfield, is over 1bn barrels of crude.

 

As the helicopter flies into Salym, it is hard to believe that just eight months ago this was virgin forest 1,250 miles east of Moscow. Since then, records have been broken in terms of drilling time per well.

 

Just two years ago, Sibir seemed to be a spent force after seven years of setbacks since its foundation in 1996. In 2000 the governor of this Siberian region of Khanty-Mansiysk favoured the government-owned Surgutneftegaz to develop the field rather than the tiny Sibir or its partner, Shell. On Friday he asked: "Why can't other oil companies develop fields as fast, as environmentally friendly and as efficient as at Salym?"

 

Meanwhile Goldman Sachs, the American investment bank, has named Salym as one of the 100 most important projects in the world.

 

This turnaround in Sibir's fortunes is all the more remarkable given the company's origins. It began life as Pentex, a group of five Scottish investors from the farming and fishing communities on the Black Isle who came together to form an oil company.

 

One of those original investors, 82-year-old Beatrice Gordon, was in Siberia on Friday. "When we formed Pentex," she says, "my friend Kenny said: 'Let's drill for oil off Skye.' Well, that wasn't very successful so we brought in Henry Cameron to restructure the company."

 

Cameron, now the chief executive of Sibir, began the quest for Siberian oil in 1996 by buying 20 per cent of Evikhon, a Russian company which owned the Salym fields.

 

"We then needed an oil development company," he says, "and we didn't know if Shell would bite. We also had to negotiate with the Russian government and regional authorities over production-sharing deals, and we needed licences. It was a tough period for us."

 

After four years of bureaucratic struggle and failed attempts to attract a development company, Chalva Tchigirinsky, a Moscow oil and property magnate, took 47 per cent of the company and became its biggest single investor.

 

Tchigirinsky brought investment capital, but also access to Moscow's oil refinery via his friendship with the capital's mayor, Yuri Luzhkov, one of Russia's most powerful politicians, who holds the strings to the city's energy supply through both the refinery and the Moscow Oil & Gas Company (MOGC).

 

"From our hesitant start off the Isle of Skye, Sibir now has a 50 per cent stake in Salym, as well as a 45 per cent stake in MOGC, which controls the Moscow refinery as well as distribution terminals and 137 petrol stations in Moscow," says Gordon. "And Sibir is currently acquiring a 25 per cent stake in BP retail with a further 45 petrol stations."

 

Some analysts reckon the Salym venture is worth more than the whole of Sibir, whose current market capitalisation is £742m.

 

But even with such rosy prospects for the company it was impossible at Friday's celebrations to ignore one remaining cloud over Sibir, concerning another field to the east of Salym called Yugra.

 

In 2000 an agreement between Sibir and Sibneft, then controlled by Roman Abramovich, the billionaire owner of Chelsea Football Club, established a 50-50 joint venture to develop Yugra. Sibneft put $100m into the project.

 

Separately, in October 2001, the Moscow city government signed a joint agreement with Sibir to form MOGC, with ultimate control of the city's refinery.

 

Sibir offered to pay for its stake in MOGC with its 50 per cent stake in Sibneft-Yugra. All sides were happy until last year, when, in the process of MOGC's due diligence, it suddenly emerged that this stake had been hugely diluted to just 1 per cent.

 

Sibir has since accused Sibneft of illegally diluting its holding in the venture. It alleges that Sibneft arranged two secret meetings to dilute the joint venture's shares, which were snapped up by six mysterious companies, four of which are registered in the British Virgin Islands.

 

Sibir has launched an action against eight defendants, including Abramovich, in the British Virgin Islands.

 

In an open letter earlier this year, Cameron threw down the gauntlet to Abramovich, writing that "the actual numbers succinctly highlight the fictitiousness of the transactions which led to the fraudulent dilution of Sibir by Sibneft and its affiliates".

 

He went on to accuse Sibneft of "corporate robbery" and Abramovich and those involved at Sibneft as "a gang of thieves". Abramovich has never replied to the letter.

 

"He [Abramovich] wants it to be dealt with in Russia, where the laws against fraud are less developed," says Cameron.

 

A spokesman for Sibneft, which has since been bought by Gazprom, the Russian gas giant, said: "Our stance has not changed. We continue to maintain that Sibneft operated legally with respect to Sibneft-Yugra. We will continue to defend our position in the courts."

 

Now a very small investor, the plucky Beatrice Gordon, says of the battle: "We'll win. The right always wins in the end. Sibir is like a Scottish salmon jumping up a waterfall. It may fail nine times, but the 10th time it'll get there."

 

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