Kicks and prodding with a sharp stick have finally forced the Effective Managers at VTB Bank to move their limbs. VTB has found users for the Chinese drilling rigs whose purchase and leasing raised questions from minority shareholders. Eight rigs will go to the Orenburg Drilling Company, and another 20 may end up with Eurasia. Yesterday, VTB Leasing announced that it had leased out six ZJ50DBS drilling rigs. The company bought 30 such rigs in July 2007, but not from the manufacturer, Sichuan Honghua Petroleum Equipment. Instead, it bought them from Cyprus-based Clusseter Ltd and intended to lease them to Well Drilling Corporation. The contract was valued at $456.9 million, or $650 million including customs duties and fees. *///////// This is new information to me; I knew nothing about it. Let’s sort it out in detail now. Vedomosti writes that a contract has been signed, but the VTB press release speaks of a “protocol of intentions” (roughly, a memorandum of intent). Obviously, those are two different things. There have been such protocols before, and they all came to nothing. If the VTB people really do manage to lease out the rigs, I’ll only be glad: it will be obvious and undeniable proof that our pressure on them has had an effect; at least some of the money will come back. But in any case, this is certainly not the end of the story — not even the middle of it. Signing an agreement with a completely different counterparty, operating in another part of the country, clearly and objectively confirms the Effective Managers’ epic fail.
The money ($650 million) was paid in July 2007. Even if we assume the rigs are put into a real lease tomorrow — which of course is impossible — it still means that $650 million has been sitting in a swamp for three years. What is $650 million worth over three years? Correct me if I’m wrong, but under a conservative estimate, around $100 million. So the net loss on this deal already stands at $100 million. Who is going to reimburse it? Who is going to answer for this? 2. I’m very interested in the lease price. The market price of a rig (new) is $10 million. The VTB price, “with kickback included,” is $15 million. On what basis will TNK-BP lease these rigs — the market price or the kickback price? If it’s the market price, that means losses for VTB. If it’s the “kickback” price, that means TNK-BP shareholders will start asking questions. I’m not a shareholder there, but I’m ready to become one (smiley). 3. A brief geography course for VTB employees:
Point A is the settlement of Purpe, where the rigs are now. Point B is the city of Buzuluk, in whose vicinity, as I understand it, the drilling will take place. Transporting the rigs is a more complicated task than the one Effective Managers are used to — namely, carrying suitcases stuffed with €500 banknotes into the buildings of the FSB of the Russian Federation (Russia’s security service) and the Ministry of Internal Affairs of the Russian Federation. Six drilling rigs amount to roughly 1,200 rail cars, plus expensive and complicated loading and unloading. How much will that cost, and who will pay for it? TNK-BP? I doubt it. The same goes for the plans that “the rigs will go drill wells in northern Kazakhstan.” From the standpoint of logistics and common sense, hauling the rigs from China to Yamal, and then to Orenburg and Kazakhstan, is hellish insanity. 4. When I saw these rigs myself and asked specialists about them, I came away with a clear impression that the equipment was incomplete and that getting it operational would not be easy. And so on. There are many questions. Slowly but without stopping, we will keep looking for answers.
And yes, of course, I really need help from the audience. If anyone knows anything about the Orenburg Drilling Company, the people at TNK-BP overseeing it, the Eurasia drilling company, or the details of the deal, please send it by email. Who stole what, who got how much in kickbacks — all of that information is badly needed. If you have acquaintances or friends working there, send them this post. They’ll be delighted to inform on their bosses.